DEF 14A of International Business Machines Corp
Filed Mar 8, 2010 · FY20090001104659-10-012758
1. Election of Directors for a Term of One Year
1. Election of Directors for a Term of One Year The Board proposes the election of the following directors of the Company for a term of one year. Below is information about each nominee, including biographical data for at least the last five years. If one or more of these nominees become unavailable to accept nomination or election as a director, the individuals named as proxies on the enclosed proxy card will vote the shares that they represent for the election of such other persons as the Board may recommend, unless the Board reduces the number of directors. ALAIN J.P. BELDA, 66, is chairman of Alcoa Inc., a producer and manager of primary aluminum, fabricated aluminum and engineered products, and is a managing director at Warburg Pincus LLC, a global private equity and investment firm. He is a member of IBM’s Executive Compensation and Management Resources Committee. Mr. Belda joined Alcoa in 1969 and subsequently held various executive positions. From 1979 to 1994, he was president of Alcoa Aluminio S.A. in Brazil, Alcoa’s Brazilian subsidiary. He was named executive vice president in 1994, vice chairman in 1995, president and chief operating officer in 1997 and president and chief executive officer in 1999. Mr. Belda was chairman and chief executive officer from 2001 until assuming the position of chairman in 2008. He is a director of Citigroup Inc. Additionally, during the past five years, he served as a director of E. I. du Pont de Nemours and Company. Mr. Belda became an IBM director in 2008. CATHLEEN BLACK, 65, is president of Hearst Magazines, a division of The Hearst Corporation, a diversified communications company. She is chair of IBM’s Directors and Corporate Governance Committee and a member of IBM’s Executive Committee. Prior to joining Hearst Magazines, she was president and chief executive officer of the Newspaper Association of America from 1991 to 1996, president, then publisher, of USA TODAY from 1983 to 1991, and also executive vice president/marketing for Gannett Company, Inc. (USA TODAY parent company) from 1985 to 1991. She is a director of The Hearst Corporation, The Coca-Cola Company, the Advertising Council, a member of the Council on Foreign Relations and a trustee of the University of Notre Dame. Additionally, during the past five years, she served as a director of iVillage Inc. Ms. Black became an IBM director in 1995. WILLIAM R. BRODY, 66, is president of the Salk Institute for Biological Studies, a non-profit scientific research institution. He is a member of IBM’s Executive Compensation and Management Resources Committee. From 1987 to 1994, Dr. Brody was the Martin Donner Professor and director of the Department of Radiology, professor of electrical and computer engineering, and professor of biomedical engineering at The Johns Hopkins University and radiologist-in-chief of The Johns Hopkins Hospital. He was the provost of the Academic Health Center at the University of Minnesota from 1994 until 1996. Dr. Brody was president of The Johns Hopkins University from 1996 to early 2009. He is a director of Novartis AG and all T. Rowe Price fund companies. Additionally, during the past five years, he served as a director of Medtronic, Inc. Dr. Brody became an IBM director in 2007. KENNETH I. CHENAULT, 58, is chairman and chief executive officer of American Express Company, a financial services company. Mr. Chenault joined American Express in 1981 and was named president of the U.S. division of American Express Travel Related Services Company, Inc. in 1993, vice chairman of American Express Company in 1995, president and chief operating officer in 1997 and chairman and chief executive officer in 2001. He is a director of The Procter & Gamble Company. Mr. Chenault became an IBM director in 1998. MICHAEL L. ESKEW, 60, is retired chairman and chief executive officer of United Parcel Service, Inc., a provider of specialized transportation and logistics services. He is chair of IBM’s Audit Committee and a member of IBM’s Executive Committee. Mr. Eskew joined United Parcel Service in 1972. He was named corporate vice president for industrial engineering in 1994, group vice president for engineering in 1996, executive vice president in 1999, vice chairman in 2000, and he was chairman and chief executive officer from 2002 until his retirement at the end of 2007. Mr. Eskew remains on the board of United Parcel Service, and he is also a director of Eli Lilly and Company, 3M Company and chairman of the Annie E. Casey Foundation. Mr. Eskew became an IBM director in 2005. SHIRLEY ANN JACKSON, 63, is president of Rensselaer Polytechnic Institute. She is a member of IBM’s Directors and Corporate Governance Committee. Dr. Jackson was a theoretical physicist at the former AT&T Bell Laboratories from 1976 to 1991, professor of theoretical physics at Rutgers University from 1991 to 1995 and chairman of the U.S. Nuclear Regulatory Commission from 1995 until she assumed her current position in 1999. Dr. Jackson is a director of FedEx Corporation, Marathon Oil Corp., Medtronic, Inc., Public Service Enterprise Group Incorporated and NYSE Euronext. She is a member of the National Academy of Engineering and a fellow of the American Academy of Arts and Sciences. Dr. Jackson is past president of the American Association for the Advancement of Science and a member of the Council on Foreign Relations and the American Philosophical Society. Dr. Jackson became an IBM director in 2005. ANDREW N. LIVERIS, 55, is chairman, president and chief executive officer of The Dow Chemical Company, a diversified chemical company. He is a member of IBM’s Executive Compensation and Management Resources Committee. Mr. Liveris joined Dow in 1976 and subsequently held various executive positions, including vice president of specialty chemicals from 1998 to 2000, business group president for performance chemicals from 2000 to 2003, and president and chief operating officer from 2003 to 2004. Mr Liveris was named president and chief executive officer of Dow in 2004 and chairman in 2006. He is a director of Citigroup Inc. Mr. Liveris serves as chairman of the US-China Business Council, vice chairman of the Business Roundtable, and a member of the Executive Committee of the Business Council. He is a member of the US-India CEO Forum, a trustee of Tufts University, and a member of the board of the Peterson Institute for International Economics. Mr. Liveris became an IBM director in 2010. W. JAMES MCNERNEY, JR., 60, is chairman, president and chief executive officer of The Boeing Company, an aerospace company and manufacturer of commercial jetliners and military aircraft. He is a member of IBM’s Audit Committee. Mr. McNerney joined The Boeing Company in his current role in 2005. Beginning in 1982, he served in management positions at General Electric Company, including as president and chief executive officer of GE Aircraft Engines from 1997 to 2000. From 2001 to 2005, he served as chairman and chief executive officer of 3M Company, a diversified technology company. He is a director of The Procter & Gamble Company. Mr. McNerney became an IBM director in 2009. TAIZO NISHIMURO, 74, is chairman of the board of the Tokyo Stock Exchange Group, Inc. He is a member of IBM’s Directors and Corporate Governance Committee. Mr. Nishimuro became chairman of the board of the Tokyo Stock Exchange, Inc. (TSE) in June 2005. He also concurrently served the TSE as president and chief executive officer from December 2005 to June 2007. Mr. Nishimuro assumed his current position with the Tokyo Stock Exchange Group, Inc. in June 2007. Mr. Nishimuro also acts as an adviser to the board of Toshiba Corporation. He was president and chief executive officer of Toshiba Corporation between 1996 and 2000 and subsequently served as chairman of Toshiba between 2000 and 2005. Mr. Nishimuro became an IBM director in 2008.
1. Election of Directors for a Term of One Year
JAMES W. OWENS, 64, is chairman of the board and chief executive officer of Caterpillar Inc., a manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. He is a member of IBM’s Audit Committee. Mr. Owens joined Caterpillar in 1972 as a corporate economist and subsequently held various management positions, including chief financial officer. He was named group president in 1995, vice chairman in 2003 and to his current position in 2004. He is a director of Alcoa Inc. Mr. Owens serves on the boards of the Peterson Institute for International Economics in Washington, D.C. and the Council on Foreign Relations. He is chairman of The Business Council, a member of the President’s Economic Recovery Advisory Board, and a trustee of North Carolina State University. Mr. Owens became an IBM director in 2006. SAMUAL J. PALMISANO, 58, is chairman of the Board, president and chief executive officer of IBM and chair of IBM’s Executive Committee. Mr. Palmisano joined IBM in 1973. He was elected senior vice president and group executive of the Personal Systems Group in 1997, senior vice president and group executive of IBM Global Services in 1998, senior vice president and group executive of Enterprise Systems in 1999, president and chief operating officer in 2000, chief executive officer in 2002 and chairman of the Board in 2003. Mr. Palmisano is a director of Exxon Mobil Corporation. Mr. Palmisano became an IBM director in 2000. JOAN E. SPERO, 65, is a visiting fellow at the Foundation Center, a leading authority on philanthropy. She is a member of IBM’s Audit Committee. Ms. Spero served as U.S. Ambassador to the United Nations for Economic and Social Affairs from 1980 to 1981. From 1981 to 1993, she held several positions with American Express Company, the last being executive vice president, corporate affairs and communications. From 1993 to 1996, Ms. Spero served as U.S. Under Secretary of State for Economic, Business and Agricultural Affairs, and from 1997 through 2008, she was president of the Doris Duke Charitable Foundation. She is a member of the supervisory board of ING Group, a director of the Council on Foreign Relations, and a trustee of Columbia University, the Wisconsin Alumni Research Foundation and the Morgridge Institute for Research. Additionally, during the past five years, she served as a director of Delta Airlines, Inc. and First Data Corporation. Ms. Spero became an IBM director in 2004. SIDNEY TAUREL, 61, is chairman emeritus of Eli Lilly and Company, a pharmaceutical company. He is chair of IBM’s Executive Compensation and Management Resources Committee and a member of IBM’s Executive Committee. Mr. Taurel joined Eli Lilly in 1971 and has held management positions in the company’s operations in South America and Europe. He was named president of Eli Lilly International Corporation in 1986, executive vice president of the Pharmaceutical Division in 1991, executive vice president of Eli Lilly and Company in 1993, and president and chief operating officer in 1996. He was named chief executive officer of Eli Lilly and Company in 1998 and chairman of the board in 1999. Mr. Taurel retired as chief executive officer in early 2008 and as chairman in late 2008. He is a director of The McGraw-Hill Companies, Inc., a member of The Business Council, the Board of Overseers of the Columbia Business School and a trustee of the Indianapolis Museum of Art. Mr. Taurel became an IBM director in 2001. LORENZO H. ZAMBRANO, 65, is chairman and chief executive officer of CEMEX, S.A.B. de C.V., a producer and marketer of cement and ready-mix concrete products. He is a member of IBM’s Directors and Corporate Governance Committee. Mr. Zambrano joined CEMEX in 1968. He was named chief executive officer in 1985 and has also served as chairman of the board since 1995. He is a director of Fomento Economico Mexicano, S.A.B. de C.V. He is also chairman of the board of the Tecnologico de Monterrey. Additionally, during the past five years, he served as a director of Empresas ICA, S.A. de C.V., Grupo Televisa, and Vitro, S.A. de C.V. Mr. Zambrano became an IBM director in 2003. IBM BOARD OF DIRECTORS IBM’s Board of Directors is responsible for supervision of the overall affairs of the Company. To assist it in carrying out its duties, the Board has delegated certain authority to several committees. Following the Annual Meeting in 2010, the Board will consist of 14 directors. In the interim between Annual Meetings, the Board has the authority under the by-laws to increase or decrease the size of the Board and to fill vacancies. The Board held 10 meetings during 2009. The Board and the Directors and Corporate Governance Committee recognize the importance of director attendance at Board and committee meetings. In 2009, overall attendance at Board and committee meetings was over 93%. Attendance was at least 75% for each director, except for Mr. Zambrano, whose inability to attend Board and committee meetings during two months in 2009 took him below the 75% attendance level. Had he attended one meeting during those two months, his attendance would have exceeded 75%. The Board and the Committee believe that Mr. Zambrano continues to make vital contributions that benefit the Company’s stockholders. Mr. Zambrano is chairman and chief executive officer of CEMEX, one of the world’s largest cement manufacturers, which is headquartered in Mexico, where he also resides. Mr. Zambrano is a highly regarded and well-known business leader, and his experience and stature in Latin America gives the Company and the Board a unique and valuable perspective. The Board recognizes that directors who reside or manage businesses headquartered outside the United States may at times have business engagements that conflict with the travel demanded by Board service. Mr. Zambrano’s attendance in 2009 was impacted by significant events involving CEMEX, including the nationalization of its Venezuelan operations by the Venezuelan government in late 2008. These events led to unavoidable scheduling and travel conflicts. The Board and the Committee believe that the Company and its investors continue to benefit from Mr. Zambrano’s participation as a Board member, notwithstanding his inability to attend the meetings referenced above. Information about board attendance at the Company’s 2009 Annual Meeting of Stockholders and the Company’s policy with regard to board members’ attendance at annual meetings of stockholders is available at http://www.ibm.com/investor/governance/board-of-directors/about-the-board.wss/. IBM’s Board of Directors has long adhered to governance principles designed to assure the continued vitality of the Board and excellence in the execution of its duties. Since 1994, the Board has had in place a set of governance guidelines reflecting these principles, including the Board’s policy of requiring a majority of independent directors, the importance of equity compensation to align the interests of directors and stockholders, and regularly scheduled executive sessions, including sessions of non-management directors without management. An executive session with independent directors is scheduled for at least once a year, and the non-management directors met in executive session two times in 2009. The IBM Board Corporate Governance Guidelines reflect the Company’s principles on corporate governance matters. These guidelines are available at http://www.ibm.com/investor/governance/corporate-governance-guidelines.wss/.
1. Election of Directors for a Term of One Year
The Directors and Corporate Governance Committee is responsible for leading the search for qualified individuals for election as directors to ensure the Board has the right mix of skills, expertise and background. The Board believes that the following attributes are key to ensuring the continued vitality of the Board and excellence in the execution of its duties: experience as a leader of a business, firm or institution; mature and practical judgment; the ability to comprehend and analyze complex matters; effective interpersonal and communication skills; and strong character and integrity. Each of the Company’s directors has these attributes. In identifying potential director candidates, the Committee and the Board also focus on ensuring that the Board reflects a diversity of experiences, backgrounds and individuals. The IBM Board is composed of a diverse group of leaders in their respective fields. Many of the current directors have leadership experience at major domestic and international companies with operations inside and outside the United States, as well as experience on other companies’ boards, which provides an understanding of different business processes, challenges and strategies. Other directors have experience as presidents of significant academic, research and philanthropic institutions, which brings unique perspectives to the Board. Further, the Company’s directors also have other experience that makes them valuable members, such as prior public policy or regulatory experience that provides insight into issues faced by companies. The Committee and the Board believe that the above-mentioned attributes, along with the leadership skills and other experiences of its Board members described in the table below, provide the Company with the perspectives and judgment necessary to guide the Company’s strategies and monitor their execution.
1. Election of Directors for a Term of One Year
| A.J.P. Belda | · | Global business experience as chairman and former chief executive officer of Alcoa Inc. | | | · | Private equity management experience as a managing director of Warburg Pincus LLC | | | · | Outside board experience as a director of Citigroup Inc. and Renault S.A. | | C. Black | · | Business leadership as president of Hearst Magazines | | | · | Affiliation with leading business and public policy association (Council on Foreign Relations) | | | · | Outside board experience as a director of The Coca-Cola Company | | | · | Experience as a university trustee | | W.R. Brody | · | Leadership position as president of the Salk Institute for Biological Studies, a leading scientific research institution that develops solutions to a wide range of medical issues | | | · | Leadership and teaching positions at research universities, including former president of The Johns Hopkins University | | | · | Outside board experience as a director of Novartis AG and all T. Rowe Price fund companies | | | · | Experience as a university trustee | | | · | Experience as founder and chief executive officer of a high-tech medical device company | | K.I. Chenault | · | Global business experience as chairman and chief executive officer of American Express Company | | | · | Affiliation with leading business and public policy associations (vice chairman of the Business Roundtable and member of The Business Council) | | | · | Outside board experience as a director of The Procter & Gamble Company | | M.L. Eskew | · | Global business experience as former chairman and chief executive officer of United Parcel Service, Inc. | | | · | Outside board experience as a director of Eli Lilly and Company and 3M Company | | | · | Chairman of a charitable organization | | S.A. Jackson | · | Leadership position as president of Rensselaer Polytechnic Institute, a leading science and technology university that brings technological innovation to the marketplace | | | · | Industry and research experience as a theoretical physicist at the former AT&T Bell Laboratories | | | · | U.S. Government service (former chairman of the U.S. Nuclear Regulatory Commission and member of the President’s Council of Advisors on Science and Technology) | | | · | Affiliation with leading business and public policy associations (Council on Foreign Relations and Council on Competitiveness) | | | · | Outside board experience as a director of FedEx Corporation, Marathon Oil Corporation, Medtronic, Inc., Public Service Enterprise Group Incorporated, and NYSE Euronext | | | · | Leadership and teaching positions at a research university | | A.N. Liveris | · | Global business experience as chairman, president and chief executive officer of The Dow Chemical Company | | | · | Affiliation with leading business and public policy associations (chairman of the US-China Business Council, vice chairman of the Business Roundtable, and member of the Executive Committee of The Business Council) | | | · | Outside board experience as a director of Citigroup Inc. | | | · | Experience as a university trustee |
1. Election of Directors for a Term of One Year
| W.J. McNerney, Jr. | · | Global business experience as chairman, president and chief executive officer of The Boeing Company | | | · | Manufacturing and technology experience as former chairman and chief executive officer of 3M Company and senior executive of General Electric Company | | | · | Affiliation with leading business and public policy association (Business Roundtable) | | | · | Outside board experience as a director of The Procter & Gamble Company | | | · | Experience as a university trustee | | T. Nishimuro | · | Leadership position as chairman of the Tokyo Stock Exchange Group, Inc. | | | · | Global business experience as former chairman, president and chief executive officer of Toshiba Corporation | | | · | Experience as an international advisory board member of Rolls-Royce Group plc, China Investment Corporation, and NTT DoCoMo, Inc. | | J.W. Owens | · | Global business experience as chairman and chief executive officer of Caterpillar Inc. | | | · | U.S. Government service (member of the President’s Economic Recovery Advisory Board) | | | · | Affiliation with leading business and public policy associations (chairman of The Business Council and director of the Council on Foreign Relations) | | | · | Experience as a university trustee | | S.J. Palmisano | · | Global business experience as chairman, president and chief executive officer of IBM | | | · | Affiliation with leading business and public policy associations (Business Roundtable and member of the Executive Committee of the Council on Competitiveness) | | | · | Outside board experience as a director of Exxon Mobil Corporation | | J.E. Spero | · | Research experience with national non-profit service organization (Visiting Fellow at the Foundation Center) | | | · | Leadership position as former president of the Doris Duke Foundation | | | · | Business experience as a former senior executive of American Express Company | | | · | U.S. Government service (former U.S. Under Secretary of State for Economic, Business and Agricultural Affairs and former U.S. Ambassador to the United Nations for Economic and Social Affairs) | | | · | Affiliation with leading business and public policy association (director of the Council on Foreign Relations) | | | · | Outside board experience as a director of ING Group | | | · | Experience as a university trustee and former university professor | | S. Taurel | · | Global business experience as former chairman and chief executive officer of Eli Lilly and Company | | | · | U.S. Government service (Homeland Security Advisory Council, President’s Export Council, Advisory Committee for Trade Policy and Negotiations) | | | · | Affiliation with leading business association (The Business Council) | | | · | Outside board experience as a director of The McGraw-Hill Companies, Inc. | | | · | Member of a university oversight board | | L.H. Zambrano | · | Global business experience as chairman and chief executive officer of CEMEX S.A.B. de C.V. | | | · | Outside board experience as a director of Fomento Economico Mexicano, S.A.B. de C.V. | | | · | Leadership position as chairman of a private educational institution |
1. Election of Directors for a Term of One Year
Under the IBM Board Corporate Governance Guidelines, the Directors and Corporate Governance Committee and the full Board annually review the financial and other relationships between the non-management directors and IBM as part of the annual assessment of director independence. The Directors and Corporate Governance Committee makes recommendations to the Board about the independence of non-management directors, and the Board determines whether those directors are independent. The independence criteria established by the Board in accordance with New York Stock Exchange requirements and used by the Directors and Corporate Governance Committee and the Board in their assessment of the independence of directors is available at http://www.ibm.com/investor/governance/board-of-directors/director-independence-standards.wss/. Applying those standards for the non-management directors standing for election, the Committee and the Board have determined that each of the following directors has met the independence standards: A.J.P. Belda, C. Black, W.R. Brody, M.L. Eskew, S.A. Jackson, A.N. Liveris, W. J. McNerney, Jr., T. Nishimuro, J.W. Owens, J.E. Spero, S. Taurel, and L.H. Zambrano. The Committee and the Board have determined that K.I. Chenault does not qualify as an independent director in view of the commercial relationships between IBM and American Express Company. As a result, Mr. Chenault does not participate on any committee of the Board or in executive sessions regarding compensation for the Company’s CEO. Otherwise, he continues to participate fully in the Board’s activities and to provide valuable expertise and advice. Mr. Eskew’s son is employed by the Company and does not hold an executive officer position. He was hired over a year before Mr. Eskew joined the Company’s Board, and his compensation and other terms of employment are determined on a basis consistent with the Company’s human resources policies. Based on the foregoing, the Board has determined that this relationship does not preclude a finding of independence for Mr. Eskew. As noted below, the Directors and Corporate Governance Committee is responsible for the continuing review of the governance structure of the Board, and for recommending to the Board those structures and practices best suited to the Company and its stockholders. At present, Mr. Palmisano serves as IBM’s chairman and chief executive officer. The Board currently has three independent presiding directors, with the Chair of the Board committee responsible for the principal subject under discussion presiding at the executive sessions of non-management directors. For example, the Chair of the Executive Compensation and Management Resources Committee presides at executive sessions of independent directors in which compensation for the CEO and CFO is determined. The Directors and Corporate Governance Committee and the Board believe that this leadership structure is appropriate for the Company at this time as it provides for focused engagement by the Board committees and their Chairs in their respective areas of responsibility, while also providing for engagement and participation by all Board members with respect to items presented for deliberation. Much attention has recently been given to the subject of risk and how companies assess and manage risks across the enterprise. At IBM, we believe that innovation and leadership are impossible without taking risks. We also recognize that imprudent acceptance of risk or the failure to appropriately identify and mitigate risks could be destructive of stockholder value. Senior management is responsible for assessing and managing the Company’s various exposures to risk on a day-to-day basis, including the creation of appropriate risk management programs and policies. IBM has developed a consistent, systemic and integrated approach to risk management to help determine how best to identify, manage and mitigate significant risks throughout the Company. The Board is responsible for overseeing management in the execution of its responsibilities and for assessing the Company’s approach to risk management. The Board exercises these responsibilities periodically as part of its meetings and also through the Board’s three committees, each of which examines various components of enterprise risk as part of their responsibilities. In addition, an overall review of risk is inherent in the Board’s consideration of the Company’s long-term strategies and in the transactions and other matters presented to the Board, including capital expenditures, acquisitions and divestitures, and financial matters. The Board’s role in risk oversight of the Company is consistent with the Company’s leadership structure, with the CEO and other members of senior management having responsibility for assessing and managing the Company’s risk exposure, and the Board and its committees providing oversight in connection with those efforts. The process by which stockholders and other interested parties may communicate with the Board or non-management directors of the Company is available at http://www. ibm.com/investor/governance/board-of-directors/contact-the-board.wss/. COMMITTEES OF THE BOARD
1. Election of Directors for a Term of One Year
| Name | Audit | Directors and Corporate Governance | Executive Compensation and Management Resources | Executive | | A.J.P. Belda | | | X | | | C. Black | | Chair | | X | | W.R. Brody | | | X | | | M.L. Eskew | Chair | | | X | | S.A. Jackson | | X | | | | A.N. Liveris | | | X | | | W.J. McNemey, Jr. | X | | | | | T. Nishimuro | | X | | | | J.W. Owens | X | | | | | S.J. Palmisano | | | | Chair | | J.E. Spero | X | | | | | S. Taurel | | | Chair | X | | L.H. Zambrano | | X | | |
1. Election of Directors for a Term of One Year
As explained above, Mr. Chenault does not qualify as an independent director; therefore, he does not participate on any committee of the Board. AUDIT COMMITTEE The Audit Committee is responsible for reviewing reports of the Company’s financial results, audits, internal controls and adherence to IBM’s Business Conduct Guidelines in compliance with applicable laws and regulations including federal procurement requirements. The Committee selects the independent registered public accounting firm and approves all related fees and compensation and reviews their selection with the Board. The Committee also reviews the procedures of the independent registered public accounting firm for ensuring its independence with respect to the services performed for the Company. Members of the Committee are non-management directors who, in the opinion of the Board, satisfy the independence criteria established by the Board and the standards of the Securities and Exchange Commission (SEC). The Board has determined that Mr. Eskew qualifies as an Audit Committee Financial Expert as defined by the rules of the SEC. The Committee held five meetings in 2009. The IBM Board of Directors has adopted a written charter for the Committee, which is available at http://www.ibm.com/investor/corpgovernance/cgbc.phtml/. The Business Conduct Guidelines (BCGs) are IBM’s code of ethics for directors, executive officers, and employees. Any amendment to, or waiver of, the BCGs that applies to our directors or executive officers may be made only by the IBM Board or a Board committee and will be disclosed on IBM’s website. The BCGs are available at http://www.ibm. com/investor/corpgovernance/cgbcg.phtml/. DIRECTORS AND CORPORATE GOVERNANCE COMMITTEE The Directors and Corporate Governance Committee is devoted primarily to the continuing review and articulation of the governance structure of the Board of Directors. As discussed above, the Committee is responsible for recommending qualified candidates to the Board for election as directors of the Company, including the slate of directors that the Board proposes for election by stockholders at the Annual Meeting. The Committee recommends candidates based on their business or professional experience, the diversity of their background, and their talents and perspectives. The Committee identifies candidates through a variety of means, including information the Committee requests from time to time from the Secretary of the Company, recommendations from members of the Committee and the Board, and suggestions from Company management, including the Chairman and CEO. The Committee also considers candidates recommended by stockholders. Any formal invitation to a director candidate is authorized by the full Board. Messrs. Liveris and McNerney are new nominees this year. Their nominations were recommended by the Committee and approved by the Board, after following this candidate identification process. Stockholders wishing to recommend director candidates for consideration by the Committee may do so by writing to the Secretary of the Company, giving the recommended candidate’s name, biographical data and qualifications. The Committee also advises and makes recommendations to the Board on all matters concerning directorship practices, and on the function and duties of the committees of the Board. The Committee also makes recommendations to the Board on compensation for non-management directors. The Committee currently retains DolmatConnell & Partners to assess trends and developments in director compensation practices and to compare the Company’s practices against them. The Committee uses the analysis prepared by the consultant as part of its periodic review of the Company’s director compensation practices. The Committee is responsible for reviewing and considering the Company’s position and practices on significant issues of corporate public responsibility, such as workforce diversity, protection of the environment and philanthropic contributions, and it reviews and considers stockholder proposals dealing with issues of public and social interest. Members of the Committee are non-management directors who, in the opinion of the Board, satisfy the independence criteria established by the Board. The Committee held three meetings in 2009. The IBM Board of Directors has adopted a written charter for the Committee, which is available at http://www.ibm.com/investor/corpgovernance/cgbc.phtml/. EXECUTIVE COMPENSATION AND MANAGEMENT RESOURCES COMMITTEE The Executive Compensation and Management Resources Committee has responsibility for defining and articulating the Company’s overall executive compensation philosophy, and administering and approving all elements of compensation for elected corporate officers. The Committee approves, by direct action or through delegation, participation in and all awards, grants and related actions under the Company’s various equity plans, reviews changes in the Company’s pension plans primarily affecting corporate officers, and manages the operation and administration of the IBM Supplemental Executive Retention Plan. The Committee has the direct responsibility to review and approve the corporate goals and objectives relevant to the Chairman and CEO’s compensation, evaluate his performance in light of those goals and objectives and, together with the other independent directors, determine and approve the Chairman and CEO’s compensation level based on this evaluation. The Committee also has responsibility for reviewing the Company’s management resources programs and for recommending qualified candidates to the Board for election as officers. The Committee reviews the compensation structure for the Company’s officers and provides oversight of management’s decisions regarding performance and compensation of other employees. In addition, the Committee monitors compliance of stock ownership guidelines. All equity awards for employees other than senior management are approved by senior management, pursuant to a series of delegations that were approved by the Committee, and the grants made pursuant to these delegations are reviewed periodically with the Committee. The IBM Senior Vice President of Human Resources (SVP HR) works directly with the chair of the Committee to provide a decision-making framework for use in making a recommendation for the Chairman and CEO’s total compensation. In addition, IBM’s Chairman and CEO and the SVP HR review the self-assessments of the Senior Vice Presidents and evaluate the information, along with comparisons to market compensation levels for cash compensation and total direct compensation, potential for future roles within IBM and total compensation levels relative to internal peers before and after any recommendations. Following this in-depth review, and in consultation with the SVP HR, the Chairman and CEO makes compensation recommendations to the Committee based on his evaluation of each senior manager’s performance and expectations for the coming year. The Committee has the sole authority to retain consultants and advisors as it may deem appropriate in its discretion, and the Committee has the sole authority to approve related fees and other retention terms. The Committee has retained Semler Brossy Consulting Group, LLC since July 2009 as its compensation consultant to advise the Committee on market practices and specific IBM policies and programs. Semler Brossy reports directly to the Compensation Committee Chairman, and takes direction from the Committee. The consultant’s work for the Committee includes data analyses, market assessments, and preparation of related reports. The work done by Semler Brossy for the Committee is documented in a formal scope of work and contract which is executed by the consultant and the
1. Election of Directors for a Term of One Year
Committee. The Committee engaged a Managing Director of Towers Perrin as outside compensation consultant through July 2009. The work performed by the Managing Director was similar to the responsibilities described above for Semler Brossy. See Section 1 of the 2009 Compensation Discussion and Analysis for additional information about compensation consultants. The Committee reports to stockholders as required by the SEC (see 2009 Report of the Executive Compensation and Management Resources Committee of the Board of Directors below). Members of the Committee are non-management directors who, in the opinion of the Board, satisfy the independence criteria established by the Board. Committee members are not eligible to participate in any of the plans or programs that the Committee administers. The Committee held five meetings in 2009. The IBM Board of Directors has adopted a written charter for the Committee, which is available at http:// www.ibm.com/investor/corpgovernance/cgbc.phtml/. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No member of the Executive Compensation and Management Resources Committee had a relationship that requires disclosure as a Compensation Committee interlock. EXECUTIVE COMMITTEE The Executive Committee is empowered to act for the full Board in intervals between Board meetings, with the exception of certain matters that by law may not be delegated. The Committee meets as necessary, and all actions by the Committee are reported at the next Board of Directors meeting. The Committee did not meet in 2009. CERTAIN TRANSACTIONS AND RELATIONSHIPS Under the Company’s written related person transactions policy, information about transactions involving related persons is assessed by the independent directors on IBM’s Board. Related persons include IBM directors and executive officers, as well as immediate family members of directors and officers, and beneficial owners of more than five percent of the Company’s common stock. If the determination is made that a related person has a material interest in any Company transaction, then the Company’s independent directors would review, approve or ratify it, and the transaction would be required to be disclosed in accordance with the SEC rules. If the related person at issue is a director of IBM, or a family member of a director, then that director would not participate in those discussions. In general, the Company is of the view that the following transactions with related persons are not significant to investors because they take place under the Company’s standard policies and procedures: the sale or purchase of products or services in the ordinary course of business and on an arm’s-length basis; the employment by the Company where the compensation and other terms of employment are determined on a basis consistent with the Company’s human resources policies; and any grants or contributions made by the Company under one of its grant programs and in accordance with the Company’s corporate contributions guidelines. From time to time, the Company may have employees who are related to our executive officers or directors. As noted under the discussion above on “General Information — Board of Directors,” Mr. Eskew’s son is employed by the Company. He is an executive of the Company. In addition, an adult child of Mr. M.E. Daniels (Senior Vice President, Global Technology Services) and a sibling of Mr. J.E. Kelly, III (Senior Vice President, Research and Intellectual Property) are employed by the Company in non-executive positions. Further, a brother-in-law of Mr. M. Loughridge (Senior Vice President and Chief Financial Officer) and the spouse of Mr. T.S. Shaughnessy (Senior Vice President, Services Delivery) are executives of the Company. The compensation and other terms of employment of each employee are determined on a basis consistent with the Company’s human resources policies. Each employee mentioned above received compensation in 2009 between $120,000 and $400,000. Additionally, the son of Mr. Eskew, the brother-in-law of Mr. Loughridge and the spouse of Mr. Shaughnessy each received equity grants in 2009. CERTAIN INFORMATION ABOUT INSURANCE AND INDEMNIFICATION The Company has renewed its directors and officers indemnification insurance coverage. This insurance covers directors and officers individually where exposures exist other than those for which the Company is able to provide indemnification. These policies run from June 30, 2009 through June 30, 2010, at a total cost of $8,160,107. The primary carrier is XL Specialty Insurance Company.
2009 Director Compensation Narrative
2009 Director Compensation Narrative Annual Retainer: In 2009, non-management directors received an annual retainer of $250,000. Chairs of the Directors and Corporate Governance Committee and the Executive Compensation and Management Resources Committee received an additional annual retainer of $10,000, and the chair of the Audit Committee received an additional annual retainer of $15,000. Under the IBM Deferred Compensation and Equity Award Plan (DCEAP), 60% of the total annual retainer is required to be deferred and paid in Promised Fee Shares (PFS). Each PFS is equal in value to one share of the Company’s common stock. When a cash dividend is paid on the Company’s common stock, each director’s PFS account is credited with additional PFS reflecting a dividend equivalent payment. With respect to the payment of the remaining 40% of the annual retainer, directors may elect one or any combination of the following: (a) deferral into PFS, (b) deferral into an interest-bearing cash account to be paid with interest at a rate equal to the rate on 26-week U.S. Treasury bills updated each January and July, and/or (c) receipt of cash payments on a quarterly basis during service as a Board member. The Company does not pay above-market or preferential earnings on compensation deferred by directors. IBM had a retirement plan for directors which was eliminated effective January 1996, and the Company credited the PFS accounts with retirement PFS equal to the benefits accrued under that retirement plan. For 2009, all directors made elections under the DCEAP to defer 100% of their annual retainer in PFS. Under the IBM Board Corporate Governance Guidelines, within five years of initial election to the Board, non-management directors are expected to have stock-based holdings in IBM equal in value to five times the annual retainer initially payable to such director. Stock-based holdings mean (i) IBM shares owned personally or by members of the immediate family sharing the same household and (ii) DCEAP PFS. Stock-based holdings do not include (i) unexercised options and (ii) any amounts credited to the PFS account in connection with the elimination of the retirement plan. Payout under the DCEAP: Upon a director’s retirement or other completion of service as a director, (a) all amounts deferred into PFS are payable in either cash and/or shares of the Company’s common stock at the director’s choice, (b) amounts deferred into the interest-bearing cash account are payable in cash, and (c) amounts credited to the PFS account in connection with the elimination of the retirement plan are payable solely in cash. The payout of PFS is valued based on the average of the high and low sales prices of IBM stock on the New York Stock Exchange on the first day after the date on which the director ceases to be a member of the Board. Termination of IBM Non-Employee Directors Stock Option Plan (the DSOP) effective January 1, 2007: Prior to January 1, 2007, non-management directors who had been elected or reelected as a member of the Board as of the adjournment of the Annual Meeting of Stockholders received on the first day of the month following such meeting an annual grant of options to purchase 4,000 shares of IBM common stock. The exercise price of the options was the average of the high and low sales prices of IBM stock on the New York Stock Exchange on the date of grant. Each option has a term of ten years and becomes exercisable in four equal installments commencing on the first anniversary of the date of grant and continuing for the three successive anniversaries thereafter. If a nonmanagement director retires (as defined in the DSOP) or dies, all options granted to that director become immediately exercisable. Effective January 1, 2007, the DSOP was terminated. Therefore, the 2009 Director Compensation Table does not include any option awards. However, the table below entitled “Aggregate Number of Option Awards Outstanding” reflects any options outstanding under the DSOP as of year end for directors in 2009. IBM’s Matching Grants Programs: Prior to January 1, 2010, non-management directors were eligible to participate in the Company’s two matching grants programs on the same basis as the Company’s employees based in the U.S. Under one of the programs, the Company provided specified matches in cash or equipment in connection with a director’s eligible contributions to approved colleges, hospitals, and cultural or environmental institutions. Under the second program, directors could have also made a contribution toward the donation of personal computer equipment to eligible primary and secondary schools of their choice. Under this second program, directors were required to donate 20% of the list price of a particular pre-packaged configuration, and the Company contributed the remaining 80%. Under each of these programs, each director’s gifts were limited to a total of $10,000 per calendar year. Effective January 1, 2010, the two programs described above were combined into a single matching grants program. Non-management directors are eligible to participate in this program on the same basis as the Company’s employees based in the U.S. Under this program, the Company will provide specified matches in cash or equipment in connection with a director’s eligible contributions to approved educational institutions, medical facilities, and cultural or environmental institutions. Each director’s gifts are limited to a total of $10,000 per calendar year. 2009 DIRECTOR COMPENSATION TABLE Fees Earned or Paid in Cash (column (b)): Amounts shown in this column reflect the annual retainer paid to each director as described above. A director receives a pro-rated amount of the annual retainer for service on the Board and, if applicable, as a committee chair, based on the portion of the year the director served. All Other Compensation (column (c)): Amounts in this column represent the following: · Dividend equivalent payments on PFS accounts under the DCEAP as described above. · Group Life Insurance premiums paid by the Company on behalf of the directors. · Value of the contributions made by the Company under the Company’s matching grants programs as described above.
2009 Director Compensation Narrative
| Name (a) | Fees Earned or Paid in Cash ($) (b) | All Other Compensation ($)(1) (c) | Total ($) (d) | | A.J.P. Belda | $250,000 | $4,285 | $254,285 | | C. Black | 260,000 | 40,723 | 300,723 | | W.R. Brody | 250,000 | 23,098 | 273,098 | | K.I. Chenault | 250,000 | 26,288 | 276,288 | | M.L. Eskew | 265,000 | 35,095 | 300,095 | | S.A. Jackson | 250,000 | 29,038 | 279,038 | | W.J. McNerney, Jr.(2) | 45,834 | 17 | 45,851 | | T. Nishimuro | 250,000 | 3,713 | 253,713 | | J.W. Owens | 250,000 | 17,853 | 267,853 | | J.E. Spero | 250,000 | 27,868 | 277,868 | | S. Taurel | 260,000 | 33,921 | 293,921 | | L.H. Zambrano | 250,000 | 18,799 | 268,799 |
2009 Director Compensation Narrative
Mr. Liveris joined the Board in February 2010; therefore, he is not included in the table above. (1) Amounts in this column include the following: for Ms. Black: $40,623 of dividend equivalent payments on PFS; for Dr. Brody: $15,000 contributed by the Company under the matching grants program; for Mr. Chenault: $26,189 of dividend equivalent payments on PFS; for Mr. Eskew: $16,234 of dividend equivalent payments on PFS and $18,761 contributed by the Company under the matching grants program; for Dr. Jackson: $13,939 of dividend equivalent payments on PFS and $15,000 contributed by the Company under the matching grants program; for Mr. Owens: $12,754 of dividend equivalent payments on PFS; for Ms. Spero: $17,769 of dividend equivalent payments on PFS and $10,000 contributed by the Company under the matching grants program; for Mr. Taurel: $23,821 of dividend equivalent payments on PFS and $10,000 contributed by the Company under the matching grants program; and for Mr. Zambrano: $18,699 of dividend equivalent payments on PFS. (2) Mr. McNerney joined the Board in October 2009. AGGREGATE NUMBER OF OPTION AWARDS OUTSTANDING (BOTH EXERCISABLE AND UNEXERCISABLE) FOR EACH DIRECTOR AT FISCAL YEAR-END As described above, until the termination of the DSOP effective January 1, 2007, non-management directors received an annual grant of options to purchase 4,000 shares of IBM common stock. Because Dr. Brody and Messrs. Belda, Liveris, McNerney and Nishimuro joined the Board after the termination of the DSOP, they did not receive any options and therefore are not included in the following table.
2009 Director Compensation Narrative
| C. Black | 28,000 | | K.I. Chenault | 28,000 | | M.L. Eskew | 8,000 | | S.A. Jackson | 4,000 | | J.W. Owens | 4,000 | | J.E. Spero | 12,000 | | S. Taurel | 24,000 | | L.H. Zambrano | 12,000 |
2009 Director Compensation Narrative
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE The Company believes that all reports for the Company’s executive officers and directors that were required to be filed under Section 16 of the Securities Exchange Act of 1934 were timely filed.
2009 Compensation Discussion and Analysis
| Current Year’s | | Longer-term | | Full Career | | Performance: | + | Performance: | + | Performance: | | Salary and Annual | | Long-term | | Retention, Pension | | Incentives | | Incentive Plan | | and Savings |
Current Year’s Performance: Salary and Annual Incentives
Current Year’s Performance: Salary and Annual Incentives Salary. Senior leaders at IBM receive a small percentage of their overall compensation in salary. In 2009, for example, Chairman and CEO Sam Palmisano earned 9% of his compensation in salary, and the rest of the senior team earned an average of 14% of their compensation in salary. Annual Incentive. Senior leaders are incented through a program that sets performance targets based on their role and scope. Actual payments are driven by business performance against revenue growth, net income, and cash flow targets and individual performance, as reflected in the Personal Business Commitment review process described under “How Compensation Decisions Are Made.” Top performers earn the greatest payouts; median performers earn much smaller amounts; and the lowest performers earn no incentive payments at all. Over the past six years, these results-based payouts for individual leaders have ranged from 0.6 times target to a high of 1.66 times target. In 2009, the annual incentive earned by the Chairman and CEO represented 24% of his total compensation; incentives achieved by the rest of the senior team averaged 16% of their total compensation. Additional information about the Annual Incentive Program is outlined in Section 2 of this CD&A, “Setting Performance Targets for Incentive Compensation.” Other Compensation. The SEC disclosure rules require that companies include certain items in the Summary Compensation Table column entitled “All Other Compensation.” At IBM, many of these items are available to all employees. In fact, additional programs that are restricted to senior executive participation amount to less than 1% of their total compensation on average. These programs are limited to services with a direct bearing on individual productivity or security. IBM’s security practices provide that all air travel by the Chairman and CEO, including personal travel, be on Company aircraft. IBM does not provide any tax assistance to Mr. Palmisano in connection with taxes incurred for personal travel by him on the corporate aircraft. While the cost of corporate aircraft usage varies year to year based on several external factors such as fuel costs, using corporate aircraft for all travel is a prudent step to ensure the safety of the Chairman and CEO given the breadth of IBM’s operations in over 170 countries which includes many emerging markets where security concerns are a reality. Given the personal travel security practice for the Chairman and CEO, family members periodically accompany him on the corporate aircraft. In accordance with tax requirements, income was imputed to Mr. Palmisano for personal travel by his family members on the corporate aircraft. In recognition of his family’s personal travel, Mr. Palmisano has contributed $63,000 to the IBM International Foundation to fund contributions to Columbia University.
Longer-Term Performance: Long-Term Incentive Plan
Longer-Term Performance: Long-Term Incentive Plan Long-term incentive plans (LTIP) have been a focal point for much of the discussion over executive compensation in the past several years. Well-designed LTIPs ensure that senior leaders hold a competitive stake in their company’s financial future. At the same time, the size of the awards reflects the value that the Company and, ultimately, its investors place on the individual executive at the time. Any gain the executives realize in the long run from the program depends on what they and their colleagues do to drive the financial performance of the Company. Under IBM’s LTIP, senior leaders may receive certain grants of IBM equity, as explained below. Performance Share Unit (PSU) Grants. This portion of the LTIP focuses senior leaders on delivering business performance over the next three years against two key financial metrics which drive long-term stockholder value — earnings per share and cash flow. Through this program, senior leaders are eligible to earn a target number of shares of IBM stock at the end of a three-year performance period. The award pays out at the end of the three years depending on how well the Company performed against targets set at the beginning of the three-year period. The payouts are made in shares of stock, so the value goes up or down based on stock price performance from the beginning of the grant. Additional information about PSUs is set forth in Section 2 of this CD&A, “Setting Performance Targets for Incentive Compensation.” Over the past nine years, program payouts have ranged from a low of 54% to a high of 147% of the target number of shares. In 2009, the long-term incentive grant to the Chairman and CEO and approximately 60 senior executives, including each SVP, was comprised entirely of PSUs. For the CEO, this represents 67% of his total compensation assuming future performance at target. PSUs were, on average, 70% of the SVPs’ total compensation in 2009. In 2010, the annual long-term incentive grant for this group will again be entirely PSUs. The IBM Integration & Values Team (I&VT) consists of a select group of approximately 320 executives charged with working beyond the scope of their regular job responsibilities to drive growth through integration and by demonstrating IBM’s values. The Chairman and CEO may grant members of this group additional performance shares (Chairman’s Performance Uplift) for delivering extraordinary results. The Chairman and CEO and SVPs are not eligible for these I&VT awards. Other Stock-Based Grants. Our LTIP also provides for grants of other stock-based awards in addition to PSUs to focus senior leaders on delivering performance that increases the value of the Company through the growth of IBM’s stock price over the long term. Although in 2009 the senior leaders received only PSUs, other stock-based grants have been made to this group in the past and are made to other executives. Other stock-based grants may include stock options, restricted stock, restricted stock units or any combination. These grants vest —become available for sale or exercise — over time, typically over one to four years. Until vested, the grants have no cash value, except that dividend equivalents are paid on restricted stock units granted prior to January 1, 2008. For restricted stock units awarded after December 31, 2007, dividend equivalents are not paid. Senior leaders awarded these grants typically hold them for extended periods and have up to 10 years to convert stock option awards to cash or shares. The outstanding stock-based grants for the named executive officers are shown in the 2009 Outstanding Equity Awards at Fiscal Year-End Table in this Proxy Statement. Full Career Performance:
Retention, Pension and Savings
Retention, Pension and Savings Retention of our key leaders for a full career is an important element of our total compensation strategy. This is accomplished through a combination of retention payments and retirement plans. Retention Stock-Based Grants & Cash Awards. Periodically, Chairman and CEO Palmisano reviews outstanding stock-based awards for the members of his senior leadership team and other key executives. Depending on individual performance and the competitive environment for senior executive leadership talent, he may recommend that the Compensation Committee approve individual retention awards, in the form of restricted stock units or cash, for certain executives. The retention restricted stock unit (RRSU) grants typically vest at the end of five years, and the cash awards have a clawback (i.e., repayment clause) if an executive leaves IBM before a specified date. These awards make it more difficult for other companies to recruit IBM’s top talent. Closed Retention Plan. In 1995, IBM created a new plan to help retain, for their full careers, the caliber of senior leaders needed to turn the Company around, preserve its long-term viability, and position it for growth in the future. To discourage these leaders from joining competitors, their benefits under this retention plan would be forfeited if they left IBM prior to the end of a full career, typically age 60. The approach worked, as evidenced by the Company’s historic turnaround in the late 1990s, and its current position of market leadership. Eleven of the Company’s top 13 executives at the end of 2009, including all of the named executive officers, were with IBM and eligible for the Retention Plan when it was introduced and remain with the Company today. Because its original purpose had been met, the plan was closed to new participants in 2004. Future accruals under the plan stopped on December 31, 2007, and the Retention Plan will not be replaced by any other plan. Pension. Prior to 2008, IBM’s senior executives and other IBM employees in the U.S. participated in pension plans. Future accruals under the pension plans stopped on December 31, 2007. The amount of the pension benefit under these plans is based on pay and service and is determined by the same formulas for executives and non-executives. Savings. IBM’s senior executives are eligible to participate in the Company’s savings plans just like any other IBM employee. Company contributions to the defined contribution plans comprise a significant portion of the “All Other Compensation” found in the Summary Compensation Table for the CEO and other senior executives. The money that U.S. executives save through the IBM 401 (k) Plus Plan (formerly the IBM Savings Plan), as for all U.S. employees, is eligible for a Company match. Prior to January 1, 2008, this match equaled 50% of the first 6% of eligible pay that participants saved through the plan for those hired before January 1, 2005, and 100% of the first 6% saved for those hired after December 31, 2004. As announced in early 2006, effective January 1, 2008, the provisions of the Savings Plan were changed, and it was renamed the 401(k) Plus Plan, becoming the only tax-qualified retirement program available to IBM’s U.S. employees for future deferrals and employer contributions. Under the provisions of the plan, IBM matches a participant’s own contributions dollar-for-dollar up to 6% of eligible pay for those hired before January 1, 2005, and up to 5% for those hired on or after that date. In addition, IBM makes automatic contributions to a participant’s 401(k) Plus account — equal to 1%, 2% or 4% of a participant’s eligible pay — depending on the participant’s pension plan eligibility on December 31, 2007. Further, through June 30, 2009, IBM contributed transition credits to eligible participants’ 401(k) Plus Plan accounts. The amount of the transition credits was based on a participant’s age and service as of June 30, 1999. Matching contributions and automatic contributions are made once a participant has completed one year of service. In the U.S., the Department of Labor and Internal Revenue Service also permit individuals who exceed certain income thresholds to defer, on a nonqualified basis, receipt of compensation they earn. This also allows IBM to delay paying these obligations and, until they come due and are paid, to retain the cash for operating purposes. In simple terms, this deferred compensation is money earned in the past but not yet paid out. Amounts deferred into the IBM Excess 401(k) Plus Plan are recordkeeping (notional) accounts and are not held in trust for the participants. Participants in IBM’s non-qualified plan, the Excess 401(k) Plus Plan may invest their notional accounts in the primary investment options available to all employees through the 401(k) Plus Plan. Participants in the Excess 401(k) Plus Plan are also eligible to receive Company match and automatic contributions on eligible pay deferred into the Excess 401(k) Plus Plan and on money earned in excess of the Internal Revenue Code pay limit once they have completed one year of service. Through June 30, 2009, eligible participants also received transition credits. IBM does not pay guaranteed, above-market or preferential earnings on deferred compensation. For executives with long and successful careers at IBM, the deferrals can accumulate to sizeable amounts over time. The value of Chairman and CEO Palmisano’s account, made up of money he earned during the past 14 years that the program has been available, was worth approximately $49 million at the end of 2009. Before he was named Chairman and CEO in January 2003, Mr. Palmisano had invested approximately $8 million of his compensation in the account. Mr. Palmisano could have chosen not to defer, taken these funds from IBM and put them in other investment vehicles. Had he done so, these numbers would not be disclosed here. The table below shows the deferral elections and accumulated balances that are owed to the Chairman and CEO from his prior years’ earned compensation. Like all participants, Mr. Palmisano’s savings are subject to investment returns. As a result, the value of these account balances will change over time depending on market performance. When Mr. Palmisano retires, the value of his deferrals under the Excess 401(k) Plus Plan will be paid to him in five equal installments over five years.
4. Ensuring Competitive Pay—Approach to Benchmarking
4. Ensuring Competitive Pay—Approach to Benchmarking IBM participates in several executive compensation surveys that provide general trend information and details on levels of salary, target annual incentives and long-term incentives, the relative mix of short- and long-term incentives, and mix of cash and stock-based pay. The benchmark companies that are used by the Compensation Committee to guide its decision making have included a broad range of key information technology companies, given the battle for talent that exists in our industry and to help us identify trends in the industry. We also include companies outside our industry, with stature, size and complexity that approximate our own, in recognition of the fact that competition for senior management talent is not limited to our industry. The surveys and benchmark data are supplemented by input from the Compensation Committee’s outside consultant on factors such as recent market trends. The Committee reviews and approves this list annually. 2009 Benchmark Group:
4. Ensuring Competitive Pay—Approach to Benchmarking
| Altria Group | Ford | PepsiCo | | Apple | General Electric | Pfizer | | AT&T | General Motors | Procter & Gamble | | Bank of America | Hewlett-Packard | Sprint | | Boeing | Honeywell | Sun Microsystems | | Chevron | Intel | Texas Instruments | | Cisco Systems | Johnson & Johnson | United Technologies | | Citigroup | Lenovo | Verizon | | Dell | Lockheed Martin | Walt Disney | | Dow Chemical | Microsoft | Wells Fargo | | DuPont | Motorola | Xerox | | EDS | | |
4. Ensuring Competitive Pay—Approach to Benchmarking
As a result of industry consolidation and the impact of the economic crisis, the Compensation Committee re-examined the benchmark group for 2010. The Compensation Committee reviewed the selection criteria for the benchmark group and determined that companies from the survey participants that meet the following criteria should be included in the 2010 benchmark group: · All companies in the technology industry with revenue that exceeds $15B, plus · Up to two (depending on availability of data) companies per other industry, with revenue that exceeds $40B and that have a global complexity similar to IBM. This group does not include companies that have participated in the U.S. Government’s Troubled Asset Relief Program (TARP). 2010 Benchmark Group:
4. Ensuring Competitive Pay—Approach to Benchmarking
| Accenture | Dell | Microsoft | | Archer Daniels Midland | Dow Chemical | Motorola | | Apple | EMC | PepsiCo | | AT&T | Ford | Pfizer | | Boeing | General Electric | Procter & Gamble | | Bunge | Google | Time Warner | | Caterpillar | Hewlett-Packard | United Technologies | | Chevron | Intel | UPS | | Cisco Systems | Johnson & Johnson | Verizon | | ConocoPhillips | Lockheed Martin | Xerox |
4. Ensuring Competitive Pay—Approach to Benchmarking
The data from this survey and related sources form the primary external view of the market, and the Company’s philosophy is to generally target the median of the market for cash and total compensation for IBM job roles compared to jobs of similar size and complexity at companies within our benchmark group. For individual compensation decisions, the benchmark information is used together with an internal view of longer-term potential and individual performance relative to other executives. For the Company’s senior level executives, the Compensation Committee also takes into account long-term retention objectives, recognizing that their skills and experience are highly sought after by other companies and, in particular, by the Company’s competitors. Because factors such as performance and retention, as well as size and complexity of the job role, are considered when compensation decisions are made, the cash and total compensation for an individual named executive officer may be higher or lower than the median of the total benchmark group.
5. Compensation Committee Consultant
| Name | 2009 Annual Incentive Payouts | | M. Loughridge | $975,000 | | S.A. Mills | 846,000 | | M.E. Daniels | 792,000 | | V.M. Rometty | 680,000 |
5. Compensation Committee Consultant
For 2010, the Committee also approved the following compensation elements: base salary, target annual incentive and Performance Share Unit grants under the Long-Term Performance Plan. There has been no change to the salary rate or annual incentive target since 2008.
5. Compensation Committee Consultant
| | 2010 Cash | | 2010 Long-Term Incentive Awards | | Name | Salary Rate | Annual Incentive Target | Performance Share Units(1) | | M. Loughridge | $720,000 | $975,000 | $3,750,000 | | S.A. Mills | 695,000 | 940,000 | 3,250,000 | | M.E. Daniels | 665,000 | 900,000 | 3,750,000 | | V.M. Rometty | 630,000 | 850,000 | 3,750,000 |
5. Compensation Committee Consultant
(1) Performance share units (PSUs) will be granted on June 8, 2010 to the named executive officers, including the CEO. The actual number of PSUs granted on this date will be determined by dividing the value shown above by a predetermined, formulaic planning price for the second quarter 2010. The PSUs will vest on December 31, 2012 and be paid out in February 2013. SENIOR LEADERS — PERSONAL STAKE IN IBM’S FUTURE THROUGH STOCK OWNERSHIP REQUIREMENTS Investors want the leaders of their companies to act like owners. That alignment, we have found, works best when senior leaders have meaningful portions of their personal holdings invested in the stock of their company. This is why IBM sets significant stock ownership requirements for approximately 60 of the Company’s senior leaders, including the Chairman and CEO. The following table illustrates which equity holdings count towards stock ownership requirements: Included · IBM shares owned personally or by members of the immediate family sharing the same household · Holdings in the IBM Stock Fund of the 401(k) Plus Plan and the Excess 401(k) Plus Plan · Shares of IBM stock deferred under the Excess 401(k) Plus Plan Not Included · Unvested equity awards, including PSUs, RSUs and RRSUs · Unexercised stock options The Chairman and CEO and SVPs are all required to own IBM stock or equivalents worth three times their individual target cash compensation (their base salary plus the incentive payment they would earn if they achieved their performance targets) within five years of hire or promotion. As a group, the Chairman and CEO and SVPs owned 1.37 million shares or equivalents valued at over $179 million as of December 31, 2009. Approximately 40 other senior leaders are required to hold IBM stock or equivalents worth one time their target cash compensation within five years of hire or promotion. The senior leaders who have been in place for at least five years have met or exceeded their personal IBM ownership requirements. In fact, this group currently holds, on average, more than three times IBM stock or equivalents above what the Company requires. IBM MEETING MARKET STANDARDS FOR EXECUTIVE COMPENSATION We recognize that the issue of executive pay is critical to stockholders and to members of the public whose hopes for the future rest substantially on trust in the conduct of those who lead our corporations. Simply put, those who profit disproportionately to the value they create for stockholders and society, or the value they provide to clients, are breaking faith with all who would do business with them, and all who would risk their hard-earned savings in the future of an enterprise. We have provided the information in these pages precisely because IBM works to preserve that faith. We know that striking a balance between stockholders’ concepts of fairness and the incentives needed to attract and retain a stellar executive team will always require sound judgment and careful thought. Business, markets, and people are too dynamic for mere formulaic solutions. The numbers can be best understood when the process behind them is transparent. IBM’s business has always been to help our clients succeed through innovative solutions. Our stockholders deserve no less. We welcome this discussion. SECTION 2: ADDITIONAL INFORMATION
Elements of Compensation Programs and Linkage to Objectives
| Compensation Element/Eligibility | Description | Linkage to Compensation Objectives | | CURRENT YEAR PERFORMANCE | | | | Salary All executives including those executives listed in the proxy statement tables (Named Executive Officers or NEOs) | Salary is a market-competitive, fixed level of compensation. | Attract and retain highly qualified leaders Motivate high business performance | | Annual lncentive All executives, including NEOs | Combined with salary, the target level of annual incentive provides a market-competitive total cash opportunity. Actual annual incentive payout depends on individual and Company performance. Lowest performers receive no incentive payment. | Attract and retain highly qualified leaders Motivate high business performance Vary compensation based on individual and team performance |
Elements of Compensation Programs and Linkage to Objectives
| Compensation Element/Eligibility | Description | Linkage to Compensation Objectives | | LONG-TERM INCENTIVE PLAN | | | | Performance Share Units (PSUs) | Equity grant value based on individual performance and retention objectives for each executive. | Align executive and stockholder interests | | Approximately 440 executives based on job scope including NEOs | Grant value is converted to the number of shares granted by dividing the planned value by the predetermined, formulaic planning price* in effect for the quarter. | Attract and retain highly qualified leaders Motivate high business performance | | | Number of shares granted is adjusted up or down at the end of the three-year performance period based on Company performance against earnings per share and cash flow targets. | | | | Encourages sustained, long-term growth by linking portion of compensation to the long-term Company performance. | | | | Paid in IBM shares upon completion of three-year performance period, linking the compensation value further to the long-term performance of IBM. | |
Elements of Compensation Programs and Linkage to Objectives
| Compensation Element/Eligibility | Description | Linkage to Compensation Objectives | | LONG-TERM INCENTIVE PLAN (CONTINUED ) | | | | Chairman’s Performance Uplift | Equity award decided annually by the Chairman and delivered to selected individuals in PSUs. | Motivate high business performance | | Select members of the I&VT (excluding Chairman and CEO and SVPs) | Selective recognition of those members of the Integration & Values Team (I&VT) who have demonstrated extraordinary results in driving growth through integration and demonstrating the IBM values. | Vary compensation based on individual and team performance | | | Receiving an uplift award one year does not guarantee awards in following years. | | | Annual Stock-Based Grant | Annual equity grants may be made in the form of restricted stock units (RSUs) or options, or some combination. | Align executive and stockholder interests | | All executives | The amount of an annual grant is dependent on the level of the executive and individual performance with lowest performers receiving no grant. Planned grant value is converted to the number of shares granted by dividing the planned value by the predetermined, formulaic planning price* in effect for the quarter and, for option grants, the respective Black-Scholes valuation factor. Awards generally vest over a 1 to 4 year period. | Attract and retain highly qualified leaders Motivate high business performance Vary compensation based on individual and team performance |
SETTING PERFORMANCE TARGETS FOR INCENTIVE COMPENSATION
SETTING PERFORMANCE TARGETS FOR INCENTIVE COMPENSATION Compensation of our senior executive team is highly linked with Company performance against four key metrics, consistent with our overall financial model: 1. Revenue Growth 2. Net Income 3. EPS 4. Cash Flow These metrics and their weightings align with IBM’s financial model and are designed to appropriately balance both short-and long-term objectives. Targets are set for both the annual and long-term incentive programs at aggressive levels each year to motivate a high degree of business performance with emphasis on longer term financial objectives. These targets, individually or together, are designed to be challenging to attain and are set within the parameters of our long-term financial model with profit expansion and growth objectives aligned with our roadmap to 2010. As part of IBM’s ongoing management system, targets are evaluated to ensure they do not include an inappropriate amount of risk. Apart from the linkage to its long-term financial model, IBM is not disclosing specific targets under the annual and long-term plans because it would signal IBM’s strategic focus areas and impair IBM’s ability to leverage these areas for competitive advantage. For example, disclosure of our cash flow targets would provide insight into timing of large capital investments or acquisitions. Knowledge of the targets could also be used by competitors to take advantage of insight into specific areas to target the recruitment of key skills from IBM. Disclosing the specific targets and metrics used in the qualitative assessment made by the Chairman and CEO would give our competitors our insight to key market dynamics and areas that could be used against IBM competitively by industry consultants or competitors targeting existing customers. Our financial model is well communicated to investors, and our performance targets are based on this model. We also describe the performance relative to the pre-set objectives in our discussion of named executive officer compensation decisions. Finally, outlined below is a description of the specific metrics and weightings for the Annual Incentive and the Performance Share Unit Programs.
ANNUAL INCENTIVE PROGRAM
ANNUAL INCENTIVE PROGRAM The Company sets business objectives at the beginning of each year that are reviewed by the Board of Directors. These objectives translate to targets for the Company and for each business unit for purposes of determining the target funding of the Annual Incentive Program. Actual funding levels can vary from 0% to 200% of target, depending on performance against objectives. At the end of the year, management assesses the financial performance for the Company based on performance against financial metrics. Each year the Compensation Committee and the Board of Directors review IBM’s annual business objectives and set the metrics and weightings for the annual program reflecting current business priorities. The metrics and weightings for 2009 and 2010 are listed below.
ANNUAL INCENTIVE PROGRAM
| | 2009 and 2010 | | | Weighting in | | Financial Metric | Overall Score | | Net Income | 60% | | Revenue Growth | 20% | | Cash Flow | 20% |
ANNUAL INCENTIVE PROGRAM
Overall funding for the Annual Incentive Program, which covers approximately 4,800 executives, is based on the performance results against these targets and may be adjusted for extraordinary events if deemed appropriate by the Chairman and CEO and Compensation Committee. This adjustment can be either up or down. For example, adjustments are usually made for large divestitures and acquisitions. In 2009, no adjustments for extraordinary events were made. In addition, the Chairman and CEO can recommend an adjustment (up and down) to the overall funding of the program based on factors beyond IBM’s financial performance such as client satisfaction, market share growth and workforce development, among others. For 2009, the Compensation Committee approved a positive adjustment to the program funding in light of the efforts of the entire executive population to deliver strong results in client satisfaction, market share and workforce development in a very challenging economic environment. The Compensation Committee reviews the financial scoring and qualitative adjustments and approves the Annual Incentive Program funding level. Once the funding level has been approved, a lower-performing executive will receive as little as zero payout and the most exceptional performers are capped at three times target (payouts at that level are rare and only possible when IBM’s performance has also been exceptional).
PERFORMANCE SHARE UNIT PROGRAM
PERFORMANCE SHARE UNIT PROGRAM EPS and cash flow targets for the Performance Share Unit program are set at the beginning of each three-year performance period, taking into account the Company’s financial model shared with investors, including the impact our share buyback program has on EPS. At the end of the three years, the score is calculated based on results against the predetermined targets, with the following weights:
PERFORMANCE SHARE UNIT PROGRAM
| | 2009 and 2010 | | | Weighting in | | Financial Metric | Overall Score | | Earnings Per Share (EPS) | 80% | | Cash Flow | 20% |
PERFORMANCE SHARE UNIT PROGRAM
Adjustments can be made for extraordinary events if deemed appropriate by the Chairman and CEO and Compensation Committee — for example, large divestitures. In 2009, no adjustments were made. The final score, which is approved by the Compensation Committee, adjusts the planned value of the actual Performance Share Unit award from 0% to 150%. There is no discretionary adjustment to the Performance Share Unit program score.
EQUITY AWARD PRACTICES
EQUITY AWARD PRACTICES Under IBM’s long-standing practices and policies, all equity awards are approved before or on the date of grant. The exercise price of at-the-money stock options is the average of the high and low market price on the date of grant or, in the case of premium-priced stock options, 10% above that average. The approval process specifies the individual receiving the grant, the number of units or the value of the award, the exercise price or formula for determining the exercise price, and the date of grant. All equity awards for senior management are approved by the Compensation Committee. All equity awards for employees other than senior management are approved by senior management pursuant to a series of delegations that were approved by the Compensation Committee, and the grants made pursuant to these delegations are reviewed periodically with the Committee. Equity awards granted as part of annual total compensation for senior management and other employees are made on specific cycle dates scheduled in advance. IBM’s policy for new hires and promotions requires approval of any awards before the grant date, which is typically the date of the promotion or hire.
GENERAL TERMS
GENERAL TERMS The Team Incentive was instituted in 2002 to reward teamwork by the Company’s most senior leaders. Given the team’s achievement and recognition that integration is part of the management culture, the Team Incentive was discontinued beginning in 2009. STOCK AWARDS TOTAL (COLUMN (e)) Amounts shown in the Stock Awards Total column are comprised of three different types of awards (Performance Share Units, Restricted Stock Units and Retention Restricted Stock Units), presented separately to enhance understanding. The amounts are the aggregate grant date fair values of awards granted in the fiscal year shown, computed in accordance with accounting guidance (excluding any risk of forfeiture for Performance Share Units as per SEC regulations). For Performance Share Units, the value shown is calculated at the Target number, as described below.
Performance Share Units (PSUs)
Performance Share Units (PSUs) The following describes the material terms and conditions of PSUs as reported in the column titled Performance Share Units (column (e)) in the 2009 Summary Compensation Table and in the 2009 Grants of Plan-Based Awards Table under the heading Estimated Future Payouts Under Equity Incentive Plan Awards (columns (f), (g) and (h)).
GENERAL TERMS
GENERAL TERMS · One PSU is equivalent in value to one share of IBM common stock. · Executive officers are awarded a number of PSUs during the first year of the three-year performance period. PSUs are generally paid out in IBM common stock after the three-year performance period. · Performance targets for cumulative three-year attainment in earnings per share and cash flow are set at the beginning of the three-year performance period. These targets are approved by the Compensation Committee. · At the end of the three-year performance period, the Compensation Committee approves the determination of actual performance relative to pre-established targets, and the number of PSUs is adjusted up or down based on the approved actual performance. · The performance period for the awards made in 2009 is January 1, 2009 through December 31, 2011. · There are no dividends or dividend equivalents paid on PSUs.
VESTING AND PAYOUT CALCULATIONS
VESTING AND PAYOUT CALCULATIONS · PSU awards granted in 2009 will be adjusted for performance (as described below), will vest on December 31, 2011 and will be paid in IBM common stock on February 1, 2012. · Outstanding PSUs typically are canceled if the executive’s employment is terminated. See 2009 Potential Payments Upon Termination Narrative for information on payout of unvested PSUs upon certain separations. · Payout of PSUs is determined by separately assessing performance against each of the pre-established targets. Payout will not be made for performance below the thresholds, as described below. · For PSUs that were paid out on or before February 1, 2008, the executive could have elected, at least six months prior to vesting, to defer payment of these shares into the IBM Excess 401(k) Plus Plan (formerly the IBM Executive Deferred Compensation Plan). For PSUs that pay out after February 1, 2008, deferrals are not permitted. · See Section 2 of the Compensation Discussion and Analysis for information on performance targets for the PSU program. Threshold Number: · The Threshold number of PSUs (listed in column (f) of the 2009 Grants of Plan-Based Awards Table) is 25% of the Target number. · The Threshold number of PSUs will be earned for achievement of 70% of both business objectives (earnings per share and cash flow). · If only the cumulative earnings-per-share target is met at the Threshold level (and the cash flow target is not met), the number of PSUs earned would be 80% of the Threshold number. · If only the cumulative cash flow target is met at the Threshold level (and the earnings-per-share target is not met), the number of PSUs earned would be 20% of the Threshold number. Target Number: The Target number of PSUs (listed in column (g) of the 2009 Grants of Plan-Based Awards Table) will be earned if 100% of the objectives are achieved. Maximum Number: · The Maximum number of PSUs (listed in column (h) of the 2009 Grants of Plan-Based Awards Table) is 150% of the Target number. · The Maximum number of PSUs will be earned for achieving 120% of both business objectives.
Restricted Stock Units (RSUs)
Restricted Stock Units (RSUs) The following describes the material terms and conditions of RSUs as reported in the column titled Restricted Stock Units (column (e)) in the 2009 Summary Compensation Table and in the 2009 Outstanding Equity Awards at Fiscal Year-End Table.
GENERAL TERMS
GENERAL TERMS · One RSU is equivalent in value to one share of IBM common stock. RSUs are generally paid out in IBM common stock at vesting. · Dividend equivalents are paid on RSUs granted before January 1, 2008 at the same rate and at the same time as the dividends paid to IBM stockholders. The amounts of such dividend equivalents were factored into the grant date fair values of 2007 RSU grants shown in the 2009 Summary Compensation Table.
VESTING AND PAYOUT
VESTING AND PAYOUT · Vesting periods for RSUs typically range from one to four years. · Payout at each vesting date is typically contingent on the recipient remaining employed by IBM through that vesting date. · See 2009 Potential Payments Upon Termination Narrative for information on payout of unvested RSUs upon certain separations. · Executives have not been allowed to defer payment of RSUs. · From time to time, special performance-based RSUs may be granted with performance contingent vesting.
Retention Restricted Stock Units (RRSUs)
Retention Restricted Stock Units (RRSUs) The following describes the material terms and conditions of RRSUs as reported in the column titled Retention Restricted Stock Units (column (e)) in the 2009 Summary Compensation Table and in the 2009 Outstanding Equity Awards at Fiscal Year-End Table.
TERMS, VESTING AND PAYOUT
TERMS, VESTING AND PAYOUT · RRSUs have the same general terms as RSUs. These awards are typically given to select senior executives for the purpose of providing additional value to retain the executive through the vesting date. · Vesting periods for RRSUs typically range from two to five years and can be as long as ten years. · Payout is contingent on the recipient remaining employed by IBM until the end of each vesting period. · For RRSUs granted on or before December 31, 2007, the executive could have elected to defer payment of those shares into the IBM Excess 401(k) Plus Plan. For RRSUs granted on or after January 1, 2008, deferrals are not permitted. OPTION AWARDS (COLUMN (f)) Amounts shown in the Option Awards Total column are the aggregate grant date fair values of option awards granted in the fiscal year shown, computed in accordance with accounting guidance. All these options were market priced options, as described below. · In accordance with IBM’s LTPP, the exercise price of stock options is not less than the average of the high and low prices of IBM common stock on the New York Stock Exchange (NYSE) on the date of grant. Except for premium priced options described below, the exercise price of stock options granted to the named executive officers is equal to the average high and low of IBM common stock on the NYSE on the date of grant. · Options generally vest in four equal increments on the first four anniversaries of the grant date. · Options generally expire ten years after the date of grant. · The option recipient must remain employed by IBM through each vesting date in order to receive any potential payout value. Market priced options: · From 2005 to 2007, market priced options were awarded to named executive officers who participated in the IBM stock investment program (the Buy-First Program) by agreeing to invest 5, 10, or 15% of their annual incentive plan payout in the IBM Stock Fund under the nonqualified deferred compensation plan. · The exercise price is equal to the average of the high and low prices of IBM common stock on the NYSE on the date of grant. · These options vest 100% three years after the date of grant. Premium priced options: · The exercise price is equal to 110% of the average of the high and low prices of IBM common stock on the NYSE on the date of grant. · These options vest in four equal increments on the first four anniversaries of the grant date. · There were no premium priced options granted to the named executive officers in the years shown in the 2009 Summary Compensation Table. Outstanding premium priced options granted in previous years to the named executive officers are included in the 2009 Outstanding Equity Awards at Fiscal Year-End Table. NON-EQUITY INCENTIVE PLAN COMPENSATION (COLUMN (g)) Amounts in this column represent payments under IBM’s Annual Incentive Plan (AIP).
PAYOUT RANGE
PAYOUT RANGE · The Chairman and CEO had a target of $5,000,000 for 2009. · Each named executive officer other than the Chairman and CEO had a target of approximately 135% of salary rate for 2009. See column (d) of the 2009 Grants of Plan-Based Awards Table for the Target payout. · Threshold payout for each named executive officer is $0 (see column (c) of the 2009 Grants of Plan-Based Awards Table). · Maximum payout for each named executive officer is three times the Target (see column (e) of the 2009 Grants of Plan-Based Awards Table).
VESTING AND PAYOUT
VESTING AND PAYOUT · In addition to performance against corporate-wide and business unit goals, individual performance against goals set at the beginning of the year determine payout amount. · An executive generally must be employed by IBM at the end of the performance period in order to be eligible to receive an AIP payout. At the discretion of appropriate senior management, the Compensation Committee, or the Board, an executive may receive a prorated payout of AIP upon retirement. · AIP payouts earned between January 1, 2009 and December 31, 2009 will be paid on or before March 15, 2010. CHANGE IN RETENTION PLAN VALUE (COLUMN (h)) · Amounts in the column titled Change in Retention Plan Value represent the annual change in retention plan value from December 31, 2008 to December 31, 2009 for each named executive officer. · See 2009 Retention Plan Narrative for a description of the Retention Plan.
NONQUALIFIED DEFERRED COMPENSATION EARNINGS (COLUMN (h))
NONQUALIFIED DEFERRED COMPENSATION EARNINGS (COLUMN (h)) · IBM does not pay above-market or preferential earnings on nonqualified deferred compensation. · See 2009 Nonqualified Deferred Compensation Narrative for a description of the nonqualified deferred compensation plans in which the named executive officers may participate.
LIFE INSURANCE PREMIUMS
LIFE INSURANCE PREMIUMS · Amounts represent life insurance premiums paid by the Company on behalf of the named executive officers. · These executive officers are covered by life insurance policies under the same terms as other U.S. full-time regular employees. · Life insurance for employees and executives hired before January 1, 2004, which includes all named executive officers, is two times salary plus annual incentive plan payout, with a maximum coverage amount of $2,000,000. · In addition, IBM provides Travel Accident Insurance for most employees in connection with business travel. Travel Accident Insurance for all employees and executives is five times salary plus annual incentive with a maximum coverage amount of $15,000,000.
2009 Summary Compensation Table
2009 Summary Compensation Table
2009 Summary Compensation Table
| Name and Principal Position (a) | Year (b) | Salary ($) (c) | Bonus ($) (d) | Perform- ance Share Units (1) ($) (e) | Restricted Stock Units (2) ($) (e) | Retention Stock Units (2) ($) (e) | Stock Awards Total (3) ($) (e) | Option Awards Total (4) ($) (f) | Non- Equity Incentive Plan Incentive Compen- sation ($) (g) | Change in Retention Plan Value (5) ($) (h) | Change in Pension Value (6) ($) (h) | Non- qualified Compen- sation Earnings (7) ($) (h) | All Other Compen- sation (8) (9) ($) (i) | Total (10) ($) (j) | | S.J. Palmisano | 2009 | $1,800,000 | $0 | $13,517,401 | $0 | $0 | $13,517,401 | $0 | $4,750,000 | $1,241,929 | $1,912,577 | $0 | $1,091,888 | $24,313,795 | | Chairman, President and CEO | 2008 | 1,800,000 | 0 | 12,220,311 | 0 | 0 | 12,220,311 | 0 | 5,500,000 | 1,546,898 | 2,452,766 | 0 | 992,175 | 24,512,150 | | | 2007 | 1,800,000 | 0 | 7,574,818 | 3,246,321 | 0 | 10,821,139 | 1,498,550 | 5,800,000 | 817,195 | 2,438,194 | 0 | 624,317 | 23,799,395 | | M. Loughridge | 2009 | 720,000 | 0 | 3,942,567 | 0 | 0 | 3,942,567 | 0 | 975,000 | 190,534 | 381,037 | 0 | 252,835 | 6,461,973 | | Senior VP and CFO | 2008 | 707,500 | 250,000 | 2,721,885 | 1,166,590 | 1,235,691 | 5,124,166 | 0 | 1,072,500 | 238,684 | 490,188 | 0 | 234,403 | 8,117,441 | | | 2007 | 685,834 | 220,000 | 2,575,448 | 1,103,764 | 0 | 3,679,212 | 223,790 | 1,168,750 | 618,103 | 822,494 | 0 | 91,114 | 7,509,297 | | S.A. Mills | 2009 | 695,000 | 0 | 3,379,401 | 0 | 0 | 3,379,401 | 0 | 846,000 | 237,285 | 408,510 | 0 | 191,746 | 5,757,942 | | Senior VP, Software Group | 2008 | 684,584 | 250,000 | 2,333,061 | 999,934 | 0 | 3,332,995 | 0 | 921,200 | 295,617 | 523,952 | 0 | 187,281 | 6,195,629 | | | 2007 | 657,501 | 220,000 | 2,272,497 | 973,927 | 0 | 3,246,424 | 319,211 | 850,700 | 347,596 | 781,878 | 0 | 63,901 | 6,487,211 | | M.E. Daniels | 2009 | 665,000 | 0 | 3,379,401 | 0 | 0 | 3,379,401 | 0 | 792,000 | 139,749 | 268,067 | 0 | 216,308 | 5,460,525 | | Senior VP, Global Technology Services | 2008 | 652,500 | 250,000 | 2,333,061 | 999,934 | 0 | 3,332,995 | 0 | 1,035,000 | 175,310 | 345,112 | 0 | 196,673 | 5,987,590 | | | 2007 | 620,417 | 220,000 | 1,969,442 | 844,091 | 3,736,364 | 6,549,897 | 0 | 1,066,400 | 541,037 | 748,545 | 0 | 24,594 | 9,770,890 | | V.M. Rometty(11) | 2009 | 630,000 | 0 | 3,379,401 | 0 | 0 | 3,379,401 | 0 | 680,000 | 71,088 | 217,817 | 0 | 201,425 | 5,179,731 | | Senior VP, Global Sales & Distribution | 2008 | 617,500 | 250,000 | 2,333,061 | 999,934 | 0 | 3,332,995 | 0 | 892,500 | 84,934 | 265,533 | 0 | 217,185 | 5,660,647 |
2009 Summary Compensation Table
(1) The amounts in this column reflect the aggregate grant date fair values of Performance Share Unit (PSU) awards at the Target number (described in the 2009 Summary Compensation Table Narrative), calculated in accordance with accounting guidance. At the Maximum number, these values for Mr. Palmisano would be: 2009: $20,276,101; 2008: $18,330,467; 2007: $11,362,227; for Mr. Loughridge: 2009: $5,913,850; 2008: $4,082,828; 2007: $3,863,173; for Mr. Mills: 2009: $5,069,101; 2008: $3,499,592; 2007: $3,408,745; for Mr. Daniels: 2009: $5,069,101; 2008: $3,499,592; 2007: $2,954,164; and for Ms. Rometty: 2009: $5,069,101; 2008: $3,499,592. (2) The amounts in these columns reflect the aggregate grant date fair values of Restricted Stock Units (RSUs) and Retention Restricted Stock Units (RRSUs), calculated in accordance with accounting guidance. The values for the 2008 RSUs and RRSUs reflect an adjustment for the exclusion of dividend equivalents, and the values for the 2007 RSUs and RRSUs include dividend equivalents. (3) The amounts in this column reflect the total of the previous three columns (Performance Share Units, Restricted Stock Units and Retention Restricted Stock Units). For assumptions used in determining the fair value of stock awards, see note T (Stock-Based Compensation) to the Company’s 2009 Consolidated Financial Statements. (4) The amounts in this column reflect the aggregate grant date fair values of market priced stock options computed in accordance with accounting guidance. For assumptions used in determining the fair value of stock option awards granted in 2007, see note T (Stock-Based Compensation) to the Company’s 2009 Consolidated Financial Statements. (5) Assumptions used to calculate these amounts can be found immediately after the 2009 Retention Plan Table. (6) Assumptions used to calculate these amounts can be found immediately after the 2009 Pension Benefits Table. (7) IBM does not provide above-market or preferential earnings on deferred compensation. (8) Amounts in this column include the following for 2009: for Mr. Palmisano: tax reimbursements of $13,045 and Company contributions to defined contribution plans of $730,000; for Mr. Loughridge: Company contributions to defined contribution plans of $198,194; for Mr. Mills: Company contributions to defined contribution plans of $186,620; for Mr. Daniels: Company contributions to defined contribution plans of $195,000; and for Ms. Rometty: Company contributions to defined contribution plans of $177,250. In accordance with the SEC rules, dividend equivalents paid in each of the years shown above on RSUs and RRSUs are not included in “All Other Compensation” because those amounts were factored into the grant date fair values. RSUs and RRSUs awarded after December 31, 2007 do not receive dividend equivalents. (9) Amounts in this column also include the following perquisites for 2009: for Mr. Palmisano: personal financial planning, personal travel on Company aircraft of $320,065, personal use of company autos, personal security, family attendance at Company-related events, and other personal expenses; for Mr. Loughridge: personal financial planning, personal travel on Company aircraft, annual executive physical, family attendance at Company-related events, and other personal expenses; for Mr. Daniels: personal financial planning, family attendance at Company-related events, and other personal expenses; and for Ms. Rometty: personal travel on Company aircraft, annual executive physical, family attendance at Company-related events, and other personal expenses. See 2009 Summary Compensation Table Narrative for a description and information about the aggregate incremental cost calculations for perquisites. (10) The amounts in this column reflect the total of the following columns: Salary, Bonus, Stock Awards Total, Option Awards Total, Non-Equity Incentive Plan Compensation, Change in Retention Plan Value, Change in Pension Value, Nonqualified Deferred Compensation Earnings and All Other Compensation. (11) Ms. Rometty was not a named executive officer in the Company’s 2008 Proxy Statement. Therefore, this table does not provide 2007 data for her.
2009 Grants of Plan-Based Awards Table
2009 Grants of Plan-Based Awards Table
2009 Grants of Plan-Based Awards Table
| | | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards(2) | | | Estimated Future Payouts Under Equity Incentive Plan Awards(3) | | | | | | | | | Name (a) | Type of Award (1) | Grant Date (b) | Compen- sation Committee Approval Date | Threshold ($) (c) | Target ($) (d) | Maximum ($) (e) | Threshold (#) (f) | Target (#) (g) | Maximum (#) (h) | All Other Stock Awards: Number of Shares of Stock or Units (#) (i) | All Other Option Awards: Number of Securities Underlying Options (#) (j) | Exercise or Base Price of Option Awards ($/Sh) (k) | Closing Price on the NYSE on the Date of Grant ($/Sh) | Grant Date Fair Value of Stock and Option Awards ($)(4) (l) | | S.J. Palmisano | AIP | N/A | 01/27/2009 | $0 | $5,000,000 | $15,000,000 | 33,334 | 133,334 | 200,001 | 0 | 0 | N/A | N/A | N/A | | | PSU | 06/08/2009 | 01/27/2009 | | | | | | | | | | | $13,517,401 | | M. Loughridge | AIP | N/A | 01/27/2009 | 0 | 975,000 | 2,925,000 | 9,722 | 38,889 | 58,334 | 0 | 0 | N/A | N/A | N/A | | | PSU | 06/08/2009 | 01/27/2009 | | | | | | | | | | | 3,942,567 | | S.A. Mills | AIP | N/A | 01/27/2009 | 0 | 940,000 | 2,820,000 | 8,334 | 33,334 | 50,001 | 0 | 0 | N/A | N/A | N/A | | | PSU | 06/08/2009 | 01/27/2009 | | | | | | | | | | | 3,379,401 | | M.E. Daniels | AIP | N/A | 01/27/2009 | 0 | 900,000 | 2,700,000 | 8,334 | 33,334 | 50,001 | 0 | 0 | N/A | N/A | N/A | | | PSU | 06/08/2009 | 01/27/2009 | | | | | | | | | | | 3,379,401 | | V.M. Rometty | AIP | N/A | 01/27/2009 | 0 | 850,000 | 2,550,000 | 8,334 | 33,334 | 50,001 | 0 | 0 | N/A | N/A | N/A | | | PSU | 06/08/2009 | 01/27/2009 | | | | | | | | | | | 3,379,401 |
2009 Grants of Plan-Based Awards Table
(1) Type of Award: AIP = Annual Incentive Plan PSU = Performance Share Unit Each of these awards was granted under IBM’s 1999 Long-Term Performance Plan. See 2009 Summary Compensation Table Narrative for additional information on these types of awards. (2) AIP amounts will be adjusted based on performance and be paid on or before March 15, 2010. (3) PSU awards will be adjusted based on performance and be paid on February 1, 2012. (4) The amounts in this column reflect the aggregate grant date fair values of PSU awards calculated in accordance with accounting guidance. The values shown are based on the Target number, as described in the 2009 Summary Compensation Table Narrative.
2009 Outstanding Equity Awards at Fiscal Year-End Narrative
2009 Outstanding Equity Awards at Fiscal Year-End Narrative
2009 Outstanding Equity Awards at Fiscal Year-End Table
2009 Outstanding Equity Awards at Fiscal Year-End Table
2009 Outstanding Equity Awards at Fiscal Year-End Table
| | Option Awards | | | | | | Stock Awards | | | | | | | | | Name (a) | Grant Date | Number of Securities Underlying Unexercised Options(2) (#) Exercisable (b) | Number of Securities Underlying Unexercised Options(3) (#) Unexercisable (c) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d) | Option Exercise Price (4) ($) (e) | Option Expiration Date (f) | Type of Award | Grant Date | Number of Shares or Units of Stock That Have Not Vested (#)(6) (g) | Market Value of Shares or Units of Stock That Have Not Vested ($)(7) (h) | Type of Award | Grant Date | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(8) (i) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(7) (j) | | S.J. Palmisano | 09/26/2000 | 100,000 | 0 | N/A | $120.12 | 09/25/2010 | RSU | 05/08/2007 | 10,527 | $1,377,984 | PSU | 05/08/2007 | 110,528 | $14,468,115 | | | 02/27/2001 | 90,000 | 0 | | 104.71 | 02/26/2011 | | | | | PSU | 05/08/2008 | 154,206 | 20,185,565 | | | 02/26/2002 | 300,000 | 0 | | 97.59 | 02/25/2012 | | | | | PSU | 06/08/2009 | 200,001 | 26,180,131 | | | 02/24/2004 | 250,000 | 0 | | 105.96(5) | 02/23/2014 | | | | | | | | | | | 03/08/2005 | 200,000 | 0 | | 101.33(5) | 03/07/2015 | | | | | | | | | | | 03/08/2005(1) | 30,325 | 0 | | 92.12 | 03/07/2015 | | | | | | | | | | | 05/08/2006 | 66,097 | 22,033 | | 91.04(5) | 05/07/2016 | | | | | | | | | | | 05/08/2006(1) | 63,628 | 0 | | 82.76 | 05/07/2016 | | | | | | | | | | | 05/08/2007(1) | 0 | 58,264 | | 102.80 | 05/07/2017 | | | | | | | | | | TOTAL | | 1,100,050 | 80,297 | | | | | | 10,527 | $1,377,984 | | | 464,735 | $60,833,811 | | M. Loughridge | 02/26/2002 | 28,462 | 0 | N/A | $97.59 | 02/25/2012 | RRSU | 03/07/2006 | 11,765 | $1,540,039 | PSU | 05/08/2007 | 37,580 | $4,919,222 | | | 02/24/2004 | 28,232 | 0 | | 105.96(5) | 02/23/2014 | RSU | 05/08/2007 | 3,579 | 468,491 | PSU | 05/08/2008 | 34,347 | 4,496,022 | | | 07/27/2004 | 20,000 | 0 | | 94.47(5) | 07/26/2014 | RSU | 05/08/2008 | 6,543 | 856,479 | PSU | 06/08/2009 | 58,334 | 7,635,921 | | | 03/08/2005 | 38,734 | 0 | | 101.33(5) | 03/07/2015 | RRSU | 10/28/2008 | 16,667 | 2,181,710 | | | | | | | 03/08/2005(1) | 5,597 | 0 | | 92.12 | 03/07/2015 | | | | | | | | | | | 05/08/2006 | 20,989 | 6,997 | | 91.04(5) | 05/07/2016 | | | | | | | | | | | 05/08/2006(1) | 8,402 | 0 | | 82.76 | 05/07/2016 | | | | | | | | | | | 05/08/2007(1) | 0 | 8,701 | | 102.80 | 05/07/2017 | | | | | | | | | | TOTAL | | 150,416 | 15,698 | | | | | | 38,554 | $5,046,719 | | | 130,261 | $17,051,165 | | S.A. Mills | 09/26/2000 | 25,000 | 0 | N/A | $120.12 | 09/25/2010 | RRSU | 12/22/2006 | 12,346 | $1,616,091 | PSU | 05/08/2007 | 33,159 | $4,340,513 | | | 02/27/2001 | 50,000 | 0 | | 104.71 | 02/26/2011 | RSU | 05/08/2007 | 3,158 | 413,382 | PSU | 05/08/2008 | 29,441 | 3,853,827 | | | 02/26/2002 | 64,774 | 0 | | 97.59 | 02/25/2012 | RSU | 05/08/2008 | 5,608 | 734,087 | PSU | 06/08/2009 | 50,001 | 6,545,131 | | | 02/25/2003 | 57,189 | 0 | | 78.13 | 02/24/2013 | | | | | | | | | | | 02/24/2004 | 55,902 | 0 | | 105.96(5) | 02/23/2014 | | | | | | | | | | | 03/08/2005 | 49,647 | 0 | | 101.33(5) | 03/07/2015 | | | | | | | | | | | 03/08/2005(1) | 4,523 | 0 | | 92.12 | 03/07/2015 | | | | | | | | | | | 05/08/2006 | 19,590 | 6,530 | | 91.04(5) | 05/07/2016 | | | | | | | | | | | 05/08/2006(1) | 11,804 | 0 | | 82.76 | 05/07/2016 | | | | | | | | | | | 05/08/2007(1) | 0 | 12,411 | | 102.80 | 05/07/2017 | | | | | | | | | | TOTAL | | 338,429 | 18,941 | | | | | | 21,112 | $2,763,560 | | | 112,601 | $14,739,471 | | M.E. Daniels | 02/29/2000 | 968 | 0 | N/A | $103.25 | 02/28/2010 | RRSU | 03/07/2006 | 11,765 | $1,540,039 | PSU | 05/08/2007 | 28,737 | $3,761,673 | | | 02/27/2001 | 27,000 | 0 | | 104.71 | 02/26/2011 | RSU | 05/08/2007 | 2,737 | 358,273 | PSU | 05/08/2008 | 29,441 | 3,853,827 | | | 02/26/2002 | 31,802 | 0 | | 97.59 | 02/25/2012 | RRSU | 12/18/2007 | 35,399 | 4,633,729 | PSU | 06/08/2009 | 50,001 | 6,545,131 | | | 02/24/2004 | 40,000 | 0 | | 105.96(5) | 02/23/2014 | RSU | 05/08/2008 | 5,608 | 734,087 | | | | | | | 03/08/2005 | 31,030 | 0 | | 101.33(5) | 03/07/2015 | | | | | | | | | | | 07/26/2005 | 16,168 | 0 | | 92.51(5) | 07/25/2015 | | | | | | | | | | | 05/08/2006 | 17,490 | 5,831 | | 91.04(5) | 05/07/2016 | | | | | | | | | | TOTAL | | 164,458 | 5,831 | | | | | | 55,509 | $7,266,128 | | | 108,179 | $14,160,631 | | V.M. Rometty | 02/27/2001 | 25,200 | 0 | N/A | $104.71 | 02/26/2011 | RRSU | 03/07/2006 | 17,648 | $2,310,123 | PSU | 05/08/2007 | 27,633 | $3,617,160 | | | 02/26/2002 | 29,446 | 0 | | 97.59 | 02/25/2012 | RSU | 05/08/2007 | 2,632 | 344,529 | PSU | 05/08/2008 | 29,441 | 3,853,827 | | | 02/24/2004 | 30,369 | 0 | | 105.96(5) | 02/23/2014 | RRSU | 12/18/2007 | 35,399 | 4,633,729 | PSU | 06/08/2009 | 50,001 | 6,545,131 | | | 03/08/2005 | 25,680 | 0 | | 101.33(5) | 03/07/2015 | RSU | 05/08/2008 | 5,608 | 734,087 | | | | | | | 03/08/2005(1) | 1,998 | 0 | | 92.12 | 03/07/2015 | | | | | | | | | | | 07/26/2005 | 23,518 | 0 | | 92.51(5) | 07/25/2015 | | | | | | | | | | | 05/08/2006 | 16,092 | 5,364 | | 91.04(5) | 05/07/2016 | | | | | | | | | | TOTAL | | 152,303 | 5,364 | | | | | | 61,287 | $8,022,468 | | | 107,075 | $14,016,118 |
2009 Outstanding Equity Awards at Fiscal Year-End Table
Type of Award: PSU = Performance Share Unit RSU = Restricted Stock Unit RRSU = Retention Restricted Stock Unit (1) These options were granted under the Buy-First Program. See 2009 Summary Compensation Table Narrative for additional information about this program. (2) Option awards shown in this column vested 25% per year on the first through the fourth anniversaries of the respective grant dates, except for options granted under the Buy-First Program, which vest 100% on the third anniversary of the respective grant dates. (3) The table below shows the vesting schedule for all unexercisable options. All options vest on the anniversary of the grant date in 2010. For example, the May 8, 2007 option grant (under the Buy-First Program) for Mr. Palmisano will vest in its entirety on May 8, 2010.
2009 Option Exercises and Stock Vested Table
2009 Option Exercises and Stock Vested Table
2009 Option Exercises and Stock Vested Table
| | Option Awards | | Stock Awards(1) | | | | Number of Shares | | Number of Shares | | | | Acquired on | Value Realized | Acquired on | Value Realized | | Name | Exercise (#) | on Exercise ($) | Vesting (#) | on Vesting ($) | | (a) | (b) | (c) | (d) | (e) | | S.J. Palmisano | 80,000 | $1,517,989 | 165,902 | $16,044,219 | | M. Loughridge | 47,000 | 785,926 | 42,358 | 3,974,874 | | S.A. Mills | 29,758 | 497,514 | 46,112 | 4,698,881 | | M.E. Daniels | 63,032 | 1,869,997 | 46,857 | 4,935,359 | | V.M. Rometty | 25,200 | 498,668 | 38,149 | 3,894,914 |
2009 Option Exercises and Stock Vested Table
(1) Amounts shown in these columns reflect PSUs, RSUs, and/or RRSUs that vested during 2009. See 2009 Summary Compensation Table Narrative for details on these types of awards.
2009 Pension Benefits Narrative
2009 Pension Benefits Narrative The 2009 Pension Benefits Table shows each named executive officer’s number of years of credited service, present value of accumulated benefit and payments during the last fiscal year under the IBM Personal Pension Plan. The IBM Personal Pension Plan consists of a tax-qualified plan and a non-tax qualified plan. Effective January 1, 2008, the non-tax qualified plan was renamed the IBM Excess Personal Pension Plan and is referred to herein as the Nonqualified Plan and the tax-qualified plan is referred to as the Qualified Plan. The combined plan is referred to herein as the IBM Personal Pension Plan.
Material Terms and Conditions: Pension Credit Formula under the Qualified Plan
Material Terms and Conditions: Pension Credit Formula under the Qualified Plan · The benefits under the Qualified Plan for all of the named executive officers are determined under the Pension Credit Formula. Each of the named executive officers satisfied the eligibility requirements for the Pension Credit Formula in 1999. · The Pension Credit Formula is a pension equity formula that provides annual benefits based on a participant’s total point value divided by an annuity conversion factor. · The total point value is equal to total base points times final average pay plus total excess points times final average pay in excess of Social Security Covered Compensation. · For purposes of the Pension Credit Formula, final average pay is equal to average compensation over the final five years of employment or the highest consecutive five calendar years of compensation, whichever is greater, prior to 2008. · The annuity conversion factor is determined according to a table set forth in the IBM Personal Pension Plan document. · Prior to 2008, the named executive officers earned points as follows: 0.16 base points each year until a 4.25 base point cap was reached, and 0.03 excess points each year until a 0.75 excess point cap was reached. · The total point value is converted to an annuity at the benefit commencement date based on pre-determined annuity conversion factors. · A named executive officer may receive his or her benefit immediately following termination of employment, or may defer benefit payments until any time between early retirement age and normal retirement age. · Early retirement age is defined as: · Any age with 30 years of service; · Age 55 with 15 years of service; or · Age 62 with five years of service. · As of December 31, 2009, Mr. Palmisano, Mr. Loughridge, Mr. Mills and Mr. Daniels had attained early retirement age, and Ms. Rometty had not. · Under the Pension Credit Formula, an executive who terminates employment and whose pension benefit commences before his or her normal retirement age will receive smaller monthly annuity payments than if his or her benefit commences at normal retirement age. · Instead of receiving his or her entire benefit under the Pension Credit Formula as an annuity, a named executive officer may elect to receive a portion of the benefit as an unsubsidized lump sum. The amount that may be paid as a lump sum is based on the benefit the named executive officer earned before January 1, 2000.
Annual Pension Benefits
Annual Pension Benefits The annual pension benefit that was earned as of December 31, 2007, and that is payable as a single life annuity beginning at normal retirement age for each of the named executive officers, is as follows:
Annual Pension Benefits
| | Annual Pension Benefit at Normal Retirement Age | | | | Name | Qualified Plan | Nonqualified Plan | Total Benefit | | S.J. Palmisano | $93,043 | $3,113,737 | $3,206,780 | | M. Loughridge | 85,717 | 613,407 | 699,124 | | S.A. Mills | 92,479 | 594,573 | 687,052 | | M.E. Daniels | 88,036 | 416,355 | 504,391 | | V.M. Rometty | 81,390 | 342,761 | 424,151 |
2009 Pension Benefits Table
2009 Pension Benefits Table As noted in the Introduction and Purpose to the 2009 Retention Plan Narrative, the 2009 Pension Benefits Table does not include amounts reflected in the 2009 Retention Plan Table.
2009 Pension Benefits Table
| Name (a) | Plan Name (b) | Number of Years Credited Service#(1) (c) | Present Value of Accumulated Benefit ($)(2) (d) | Payments During Last Fiscal Year ($) (e) | | S.J. Palmisano | Qualified Plan | 34 | $743,236 | $0 | | | Nonqualified Plan | | 24,872,900 | 0 | | | TOTAL BENEFIT | | 25,616,136 | 0 | | M. Loughridge | Qualified Plan | 30 | 600,237 | 0 | | | Nonqualified Plan | | 4,295,412 | 0 | | | TOTAL BENEFIT | | 4,895,649 | 0 | | S.A. Mills | Qualified Plan | 34 | 735,384 | 0 | | | Nonqualified Plan | | 4,727,985 | 0 | | | TOTAL BENEFIT | | 5,463,369 | 0 | | M.E. Daniels | Qualified Plan | 32 | 594,480 | 0 | | | Nonqualified Plan | | 2,811,533 | 0 | | | TOTAL BENEFIT | | 3,406,013 | 0 | | V.M. Rometty | Qualified Plan | 26 | 501,361 | 0 | | | Nonqualified Plan | | 2,111,392 | 0 | | | TOTAL BENEFIT | | 2,612,753 | 0 |
2009 Pension Benefits Table
(1) Reflects years of credited service as of December 31, 2007, which was the date accruals under the Qualified Plan and the Nonqualified Plan stopped. Each of the named executive officers has two additional years of service with IBM after that date. (2) While the accruals under the Qualified Plan and the Nonqualified Plan stopped on December 31, 2007, the value of the Qualified Plan and Nonqualified Plan benefits will continue to change based on the ages of the named executive officers and the assumptions used to calculate the present value of the accumulated benefit. · Measurement date: December 31, 2009 · Interest rate for present value: 5.60% · Mortality (pre-commencement): None · Mortality (post-commencement): 1994 US GAM Male or Female table with 25 year improvement · Termination of employment: Later of age 65 or current age · Accumulated benefit is calculated based on credited service and compensation history as of December 31, 2007. · Benefit payable as a single life annuity beginning on the first day of the month following termination of employment. The six-month delay under the Nonqualified Plan for “specified employees” as required under Section 409A of the Internal Revenue Code was disregarded for this purpose. · The Pension Credit Formula conversion factor is based on age at December 31, 2007 and commencement at age 65. · All results shown are estimates only; actual benefits will be based on precise credited service and compensation history, which will be determined at termination of employment. Assumptions to determine present value as of December 31, 2008: · The column titled Change in Pension Value in the 2009 Summary Compensation Table quantifies the change in the present value of the pension benefit from December 31, 2008 to December 31, 2009. · To determine the present value of the pension benefit as of December 31, 2008, the same assumptions that are described above to determine the present value as of December 31, 2009 were used, except a 5.75% interest rate was used to determine the present value.
2009 Nonqualified Deferred Compensation Narrative
2009 Nonqualified Deferred Compensation Narrative IBM EXCESS 401(k) PLUS PLAN
Payouts, Withdrawals and Other Distributions
Payouts, Withdrawals and Other Distributions · No payouts, withdrawals or other distributions from the Basic Account are permitted prior to termination of employment. · At separation, the balance in an executive’s Basic Account that was deferred prior to January 1, 2005 is paid to the executive in a lump sum unless: (a) the balance exceeds $25,000 and (b) the executive satisfies the following age and service criteria: · At least age 55 with 15 years of service; · At least age 62 with 5 years of service; · At least age 65 with 1 year of service; · Any age with at least 30 years of service, provided that, as of June 30, 1999, the executive had at least 25 years of service or was at least age 40 with 10 years of service; or · Commencing benefits under the IBM Long-Term Disability Plan. · As of December 31, 2009, Mr. Palmisano, Mr. Loughridge, Mr. Mills and Mr. Daniels had satisfied the age and service criteria, and Ms. Rometty had not. · If the participant has satisfied the age, service and account balance criteria at separation, but has not made a valid advance election of another form of distribution, the amount of the participant’s Basic Account that was deferred prior to January 1, 2005 is paid in a lump sum in February of the year following separation. · If the participant has satisfied the age, service and account balance criteria at separation and has made a valid advance election, the amount of the participant’s Basic Account that was deferred prior to January 1, 2005 is paid as elected by the participant from among the following choices: 1. Lump sum upon separation, 2. Lump sum in February of the year following separation, or 3. Annual installments (beginning February 1 of the year following separation) for a number of years (between two and ten) elected by the participant. · With respect to amounts deferred on or after January 1, 2005, at separation such amounts in the Basic Account are distributed in a lump sum immediately following termination, unless the total balance of a participant’s Basic Account exceeds 50% of the applicable IRS pay limit (in 2009, 50% of this limit was $122,500). In such case the participant’s Basic Account with respect to amounts deferred on or after January 1, 2005 may be distributed in the following forms as elected by the participant: 1. Lump sum upon separation, 2. Lump sum in February of the year following separation, or 3. Annual installments (beginning February 1 of the year following separation) for a number of years (between two and ten) elected by the participant. · Distribution elections may be changed in advance of separation, in accordance with Internal Revenue Code rules. · Different distribution elections are permitted to be made for the Basic Account and the Deferred Shares Account. Further, within the Basic Account and the Deferred Shares Account, different distribution elections are permitted to be made for the amounts that were deferred before January 1, 2005 and the amounts that were deferred on or after January 1, 2005. · At December 31, 2009, the named executive officers had the following distribution elections on file: · Mr. Palmisano — 5 annual installments for all amounts · Mr. Loughridge — immediate lump sum for all amounts · Mr. Mills — 10 annual installments for all amounts · Mr. Daniels — 10 annual installments for pre-2005 amounts, and immediate lump sum for all post-2004 amounts · Ms. Rometty — 10 annual installments for all amounts · The balance in a participant’s Basic Account continues to experience investment gains and losses until it has been completely distributed. · Deferred IBM Shares are distributed only in the form of shares of the Company’s common stock. · Subject to the age and service criteria, a participant may make a separate, advance distribution election as to the timing of distribution of Deferred IBM Shares; none of the named executive officers has made a separate, advance election for Deferred IBM Shares. · If no separate, advance election has been made, or if the age and service criteria are notsatisfied at termination of employment, Deferred IBM Shares are distributed at the same time as the Basic Account. · These distribution rules are subject to Section 409A of the Internal Revenue Code, including, for example, the rule that a “specified employee” may not receive a distribution of post-2004 deferrals until at least six months following termination of employment; all of the named executive officers were “specified employees” under Section 409A at the end of the last fiscal year.
2009 Nonqualified Deferred Compensation Table
2009 Nonqualified Deferred Compensation Table
2009 Nonqualified Deferred Compensation Table
| Name (a) | Plan | Executive Contributions in last FY($)(1) (b) | Registrant Contributions in last FY($)(2) (c) | | Aggregate Earnings in last FY($)(3) (d) | Aggregate Withdrawals/ Distributions ($) (e) | Aggregate Balance at last FYE ($)(4) (f) | | S.J. Palmisano | Basic Account | $423,300 | Match | $423,300 | $4,899,354 | $0 | $20,684,823 | | | | | Automatic | 282,200 | | | | | | Deferred IBM Shares | 2,932,000 | | 0 | 9,674,749 | 0 | 28,190,755 | | | TOTAL | 3,355,300 | | 705,500 | 14,574,103 | 0 | 48,875,578 | | M. Loughridge | Basic Account | 107,850 | Match | 107,850 | 695,309 | 0 | 2,743,230 | | | | | Automatic | 71,900 | | | | | | Deferred IBM Shares | 0 | | 0 | 1,851,709 | 0 | 4,957,838 | | | TOTAL | 107,850 | | 179,750 | 2,547,018 | 0 | 7,701,068 | | S.A. Mills | Basic Account | 323,790 | Match | 97,272 | 1,577,471 | 0 | 6,065,345 | | | | | Automatic | 64,848 | | | | | | Deferred IBM Shares | 0 | | 0 | 0 | 0 | 0 | | | TOTAL | 323,790 | | 162,120 | 1,577,471 | 0 | 6,065,345 | | M.E. Daniels | Basic Account | 102,300 | Match | 102,300 | 921,377 | 0 | 3,690,484 | | | | | Automatic | 68,200 | | | | | | Deferred IBM Shares | 0 | | 0 | 0 | 0 | 0 | | | TOTAL | 102,300 | | 170,500 | 921,377 | 0 | 3,690,484 | | V.M. Rometty | Basic Account | 272,600 | Match | 91,650 | 652,054 | 0 | 3,655,554 | | | | | Automatic | 61,100 | | | | | | Deferred IBM Shares | 0 | | 0 | 1,364,226 | 0 | 3,652,634 | | | TOTAL | 272,600 | | 152,750 | 2,016,280 | 0 | 7,308,188 |
2009 Nonqualified Deferred Compensation Table
(1) A portion of the amount reported in this column (b) for each named executive officer’s Basic Account is included within the amount reported as salary for that officer in column (c) of 2009 Summary Compensation Table. These amounts are: $93,300 for Mr. Palmisano; $28,500 for Mr. Loughridge; $89,550 for Mr. Mills; $25,200 for Mr. Daniels; and $44,100 for Ms. Rometty. Mr. Palmisano’s shares vested in July 2009, and were deferred into the Excess 401(k) Plus Plan subject to an election made by Mr. Palmisano prior to 2008. (2) For each of the named executive officers, the entire amount reported in this column (c) is included within the amount reported in column (i) of 2009 Summary Compensation Table. The amounts reported as Company contributions to defined contribution plans in footnote 9 to 2009 Summary Compensation Table are larger because the amounts reported in that footnote also include the Company’s contributions to the IBM 401(k) Plus Plan. (3) None of the amounts reported in this column (d) are reported in 2009 Summary Compensation Table because the Company does not pay guaranteed, above-market or preferential earnings on deferred compensation. (4) Amounts reported in this column (f) for each named executive officer include amounts previously reported in the Company’s Summary Compensation Table in previous years when earned if that officer’s compensation was required to be disclosed in a previous year. Amounts previously reported in such years include previously earned, but deferred, salary and incentive and Company matching and automatic contributions. This total reflects the cumulative value of each named executive officer’s deferrals, match and automatic contributions and investment experience, including an $8 quarterly administrative fee.
2009 Potential Payments Upon Termination Narrative
2009 Potential Payments Upon Termination Narrative
IBM FUTURE HEALTH ACCOUNT
IBM FUTURE HEALTH ACCOUNT · Amounts credited by the Company to a hypothetical account may be used to offset the cost of medical, dental and vision insurance coverage for former employees and their eligible dependents. · Generally, all regular full-time or part-time U.S. IBM employees who meet the following criteria are eligible to use amounts from the account for these purposes: · Hired before January 1, 2004; · At least age 40 and have completed one year of service; · Not within 5 years of earliest retirement eligibility under the prior IBM Retirement Plan on June 30, 1999; and · At termination they have attained 30 years of service (regardless of age) and were eligible for an opening balance on July 1, 1999, or have attained at least age 55 with 15 years of service. · Mr. Loughridge, Mr. Daniels and Ms. Rometty would have been eligible for this benefit following a termination of employment on the last business day of the fiscal year ended.
2009 Potential Payments Upon Termination Table
2009 Potential Payments Upon Termination Table
2009 Potential Payments Upon Termination Table
| | | Annual | LTPP | | | Excess 401 (k)(6) | | | Name | Termination Scenario | Incentive Plan ($)(2) | Stock Options ($)(3) | PSUs ($)(4) | Retention Plan ($)(5) | Basic Account ($) | Deferred IBM Shares ($) | | S.J. Palmisano | Termination(1) | $4,750,000 | $32,450,782 | $13,985,749 | $1,404,609 | $4,136,965(7) | $5,638,151(7) | | | For cause | 0 | 0 | 0 | 0 | 4,136,965(7) | 5,638,151(7) | | M. Loughridge | Termination(1) | 975,000 | 4,984,285 | 4,755,204 | 0 | 2,743,230(8) | 4,957,838(8) | | | For cause | 0 | 0 | 0 | 0 | 2,743,230(8) | 4,957,838(8) | | S.A. Mills | Termination(1) | 846,000 | 11,141,247 | 4,195,869 | 266,360 | 606,535(9) | 0 | | | For cause | 0 | 0 | 0 | 0 | 606,535(9) | 0 | | M.E. Daniels | Termination(1) | 792,000 | 5,026,218 | 3,636,271 | 0 | 1,602,667(10) | 0 | | | For cause | 0 | 0 | 0 | 0 | 1,602,667(10) | 0 | | V.M. Rometty | Termination(1) | 680,000 | 4,779,360 | 0 | 0 | 2,601,627(11) | 3,704,891(12) | | | For cause | 0 | 0 | 0 | 0 | 2,601,627(11) | 3,704,891(12) |
2009 Potential Payments Upon Termination Table
(1) Termination includes the following separation scenarios: resignation, retirement and involuntary termination not for cause (in all cases, assuming the executive is not entering into competitive or other activity detrimental to IBM). (2) Assumes that the AIP payment made to each named executive officer following termination of employment on the last business day of the fiscal year ended would have been the same as the actual payment made in March 2010. (3) Assumes each named executive officer exercised all vested, in-the-money options at $130.90 (the 2009 fiscal year-end closing price of IBM common stock on the NYSE). (4) Assumes IBM released PSUs granted in 2007, according to its policy, for the three-year performance period ending on December 31, 2009 for named executive officers who were at least age 55 and had at least 15 years of service on December 31, 2009 (Mr. Palmisano, Mr. Loughridge, Mr. Mills and Mr. Daniels). PSUs are adjusted for performance and released in shares of IBM common stock (with any fractional shares rounded to the nearest whole share) on February 1 in the year following the end of the performance period. (5) Reflects the Retention Plan benefit payable as an immediate annual single life annuity. See the IBM Supplemental Executive Retention Plan section above for more details. (6) Estimated payments were calculated using the aggregate account balance as of the last business day of the fiscal year ended. See the section titled IBM Excess 401(k) Plus Plan above for more details. (7) Approximate annual amount payable for 5 years starting in February 2010. Deferred IBM Shares are paid as shares of IBM common stock. (8) Payable in an immediate lump sum following termination. Deferred IBM Shares are paid as shares of IBM common stock. (9) Approximate annual amount payable for 10 years starting in February 2010. (10) Sum of the approximate annual amount of Basic Account deferred prior to January 1, 2005 payable for 10 years starting in February 2010 ($231,980) and the approximate amount of the Basic Account deferred on or after 2005 payable in an immediate lump sum following termination ($1,370,687). (11) Sum of the approximate amount of the Basic Account deferred prior to January 1, 2005 payable as an immediate lump sum following termination ($2,490,330) under the default distribution option because Ms. Rometty is not yet retirement eligible (and may not receive her pre-2005 amounts in installments as elected until she is retirement eligible) and the approximate annual amount of the Basic Account deferred on or after January 1, 2005 payable for 10 years starting in February 2010 ($111,297). (12) Deferred IBM Shares (which were deferred before January 1, 2005) are paid as shares of IBM common stock as an immediate lump sum following termination under the default distribution option because Ms. Rometty is not yet retirement eligible.